The nature of the slump in the US is unknown. In the same way that unexpected economic developments over the past five years led to gross underestimating of tax revenue, the abrupt reversal of the economy is likely to lead to serious overestimating. It also reflected a surge in productivity and economic growth, increasing inequality in terms of income gains, a rise in profits as a share of the economy and a surge in capital gains and income tax revenue generated by the soaring equity market. However, most of these factors are in the process of reversing course or at least, their continuation is in doubt. The White House has assumed, at least publicly, a resumption in normal US growth next year and little change to the cumulative 10-year budget surplus.
Many economists now feel that assumption is overly optimistic.
Recent revisions to productivity growth figures have cast serious doubt on earlier estimates of the economy's long-run growth potential and how much tax revenue will be generated. And profound questions loom over how and whether future obligations to Social Security and Medicare recipients will be met, as Republicans and Democrats jostle over competing, costly spending proposals among them a prescription-drug benefit plan, missile defence and Social Security privatisation. 2001 - iSyndicate, inc.