Budget Plan Assumes Too Much, Demands Too Little
Tuesday, February 7, 2006
President Bush's budget blueprint would bring the federal government's budget deficit under control by decade's end. But to do that without raising taxes, the White House would need a sweeping tax reform that it has avoided proposing and a swift end to the war in Iraq.
The budget plan for fiscal 2007 underscores what budget analysts of all political stripes have been saying for years: The goals of balancing the budget, waging a global fight against terrorism and making Bush's first-term tax cuts permanent may be fundamentally at odds.
Under the budget plan, the deficit would jump from $318 billion last year to $423 billion in 2006, then slide back down to $183 billion in 2010. In 2011, the last year of the White House's projection, the deficit would again begin to rise, to $205 billion, reflecting the cost of extending Bush's tax cuts beyond their 2010 expiration date and enacting a proposed Social Security restructuring that would cost $57 billion in that year alone.
But even getting there requires some heroic assumptions.
The president's budget acknowledges the cost of Bush's call to make his tax cuts permanent -- $1.35 trillion over the next decade and nearly $120 billion in 2011 alone. But beyond 2007, the budget assumes no military expenditures in Iraq or Afghanistan and no effort to address the unintended effects of the alternative minimum tax, a parallel income tax system that was designed to hit the rich but has instead increasingly pinched the middle class. It also assumes Congress will cut domestic spending every year after 2007.
Those factors led Goldman Sachs economists to tell clients yesterday that the deficit forecasts are "unrealistic."
White House Budget Director Joshua B. Bolten said that something must be done about the AMT. But beyond 2007, when Bush assumes a one-year provision to mitigate the AMT's impact on the middle class, Bolten said any fix should be part of a broader "revenue-neutral" restructuring of the tax system. Such a revision, once viewed as a priority of the president's, has disappeared from Bush's political agenda.
"In the absence of even mentioning tax reform in his State of the Union address, it may be presumptuous to assume a revenue-neutral AMT fix after 2007," said Brian M. Riedl, a federal budget expert at the conservative Heritage Foundation.
The administration, for the first time, has spelled out anticipated spending on the wars in Iraq and Afghanistan in a formal budget document. Previously, the administration submitted requests for supplemental or emergency spending to cover costs. But the $50 billion in war funding for next year falls well short of the $120 billion that was requested for 2006. And no further war spending is included in future deficit projections.
"This budget is not going to happen," said Stanley E. Collender, a federal budget analyst at Financial Dynamics Business Communications. "Of all the budgets I've seen recently, this is the one going nowhere the fastest."
What is included may prove equally unrealistic, Collender and other budget experts said. The budget includes a crackdown on tax cheats that is supposed to net more than $1.5 billion over the next five years and $3.6 billion over the next decade. But if such a crackdown is in the offing, the Internal Revenue Service has said very little about it.
The president assumes that Congress will cut discretionary spending unrelated to national security from $492 billion in 2007 to $455 billion in 2011, and that lawmakers will hold the line on defense spending. Total discretionary spending -- including defense, homeland security and domestic government programs -- would fall under the president's budget from $1.03 trillion this year to $994 billion in 2011.
"Nearly all of their savings comes from this cut to total discretionary spending," Riedl said. "That does nothing for the real long-term problem," which the Bush administration acknowledges to be entitlement programs, such as Medicare and Social Security.
Many of the tough cuts the president did include were rejected just days ago, when Congress gave final approval to a major budget-cutting measure. Lawmakers left out the White House's proposals to cut agricultural price supports and food stamps, and to open Alaska's Arctic National Wildlife Refuge to oil drilling.
After a difficult political struggle that badly divided congressional Republicans, lawmakers muscled through savings from Medicaid and the State Children's Health Insurance Program, federal child support enforcement and the Pension Benefit Guaranty Corp. Before Bush has even signed that legislation, he is coming back for more. His budget proposes to wring out $4.9 billion more in savings from Medicaid and the State Children's Health Insurance Program, $17 million from child support enforcement and $16.7 billion from the federal pension insurance program through 2011.
Douglas Holtz-Eakin, the recently retired director of the Congressional Budget Office, gave credit to Bush for putting entitlement cuts on the table. But the problems with the budget -- especially in not confronting the effects of the AMT and the war in Iraq -- have cropped up time and again, Holtz-Eakin said.
"There's lots of this we've seen before, and that's what Bolten said today: 'We're going to take our priorities and stick with them,' " said Holtz-Eakin, a former Bush White House economist. "This seems familiar because it is familiar."