Deficit of Candor
THE BUSH administration had a great time patting itself on the back yesterday over its stewardship of the federal budget. The president went to the East Room to crow that the deficit is now projected to be less than $300 billion this year -- 30 percent lower than what the administration had forecast in February. As a result, Mr. Bush proclaimed, the administration is a full year ahead of schedule on its goal of cutting the deficit in half by 2009.
But this a phony goal. What's important is getting the federal budget on a sustainable fiscal course for the long term. Yesterday's news doesn't get the country closer to that objective. Assuming the administration's projections prove accurate, spending will outstrip revenue in every year through 2011 -- the end of the administration's budget window.
This is a time when the country should be -- or should have been -- conserving resources in anticipation of the retirement of the baby boomers. With entitlement spending on health care and pensions set to explode, the budgetary scenario after 2011 is grim, as the administration itself acknowledges. "No plausible amount of cuts to discretionary programs or tax increases can avert this major fiscal challenge," says yesterday's Mid-Session Review.
The windfall announced yesterday of course is welcome -- especially because from 2001 through 2003, tax receipts fell for three straight years, which had not happened since before World War II. The administration notes that tax revenue this year is projected to be 18.3 percent of the nation's economic output, just above the 40-year average of 18.2 percent. It is projected to be under that -- averaging 17.9 percent -- from 2007 through 2011.
"Some in Washington say we had to choose between cutting taxes and cutting the deficit," Mr. Bush said yesterday. "Today's numbers show that that was a false choice." But his notion that the country can simply "grow our way out" of the deficit is false -- belied by the administration's own analyses. Its first budget projected that tax revenue, without any cuts, would have been $2.698 trillion in 2006 -- $300 billion more than the administration now expects to take in.
And contained within yesterday's report is the administration's own "dynamic" assessment of the potential long-term growth-enhancing effect of tax cuts: The economy, it found, "may ultimately be higher by as much as 0.7 percent." As the liberal Center on Budget and Policy Priorities noted, that would mean -- in the most optimistic scenario -- an extra $29 billion in tax revenue in 2016. The tax cuts that year are expected to cost $314 billion.
Mr. Bush didn't make a false choice between cutting taxes and dealing with the deficit. He just made the wrong one. Yesterday's news doesn't erase that -- nor the additional $2.2 trillion in debt that the Bush administration, by its own calculations, will have piled up on its watch.