One of the problems with using phony numbers is that they catch up with you sooner or later. That's finally happened to the Bush administration and its congressional allies, who used phony numbers to pass enormous tax cuts in 2001 and 2003, rather than settling for the very large cuts they could have gotten by playing it straight.
Now, the bill is coming in. Fallout from phony numbers and having to pay for Hurricane Katrina have stalled Washington's cut-taxes-and-borrow crew, at least temporarily. Think of it as payback time.
Corporate America has gotten grief the past few years for questionable bookkeeping. But if a company calculated profits the way Congress calculates the size of tax cuts, its executives would be risking jail time under the Sarbanes-Oxley reform rules.
Let's flash back to the heyday of tax cutting: 2001. You remember, we were supposedly going to have enormous federal budget surpluses as far as the eye can see. But instead of settling for large, straightforward, permanent tax cuts, Bush and his congressional allies used two kinds of "fuzzy math."
First, even though they intended the cuts to be permanent, they pretended that some of them would disappear, so the total would look good in whatever five- or 10-year budget window they were using.
Second, they minimized the cost of the cuts by shoving millions of ordinary taxpayers into the alternative minimum tax, which was originally designed to stop a handful of rich people from avoiding all taxes. They knew this was going to happen -- Bush economic adviser Larry Lindsey talked about the tax cut-AMT interaction during the 2000 campaign.
But now, some of those chickens have come back to roost, as have some from the 2003 cut. The move to permanently eliminate the estate tax seems stalled. In a piece of phony math from 2001, this tax is scheduled to end in 2010 but resume in 2011. The Bushies could have gotten a large permanent cut in the estate tax -- but they insisted on total repeal, cooking the numbers to make it seem affordable.
Then there's the AMT, which has politically undermined the president's tax advisory commission. The panel has proposed eliminating this scourge, projected to raise $1.2 trillion over 10 years. The reason that number's so high is that Bush's tax cuts, which the panel proposes to make permanent, would greatly increase the amount of AMT the government collects.
To help find the necessary $1.2 trillion to make its proposals "revenue neutral," the advisory commission had to propose greatly reducing the tax benefits associated with homeownership. Whacking homeowners so heavily has probably doomed the whole package, which is fine with me. There are good aspects to some of the panel's proposals, but I consider the overall package to be skewed heavily toward people with lots of investment income, generally the mega-wealthy. (The commission disagrees, saying that when all its proposed changes are taken into account, high-income people are slightly worse off than they are now, relative to other taxpayers.)
On another front, Bush and the rest of the it's-always-a-good-day-to-cut-taxes crew are having trouble getting Congress to approve $70 billion of tax cuts (over five years) as part of the budget reconciliation process. These cuts would go primarily to upper-middle-income and rich taxpayers, while $35 billion of proposed cuts in benefits for food stamps, Medicaid and the like would affect mostly lower-income people.
Some members of the House and Senate now seem to have realized how distasteful this combination is. As well they should. Throw in fallout from Katrina, and you can see why Bush and his allies have had such trouble shoving these budget reconciliation tax-and-spending cuts through Congress -- though they may yet prevail.
Most of the tax cuts under consideration stem from the 2003 round of phony math, which assumed that the reductions on dividend and capital gain income would go away after 2008. Bush and his congressional allies had no intention of letting that happen, but they foisted this fiction on us to make the cut fit budget guidelines.
I don't know how all this will play out, but I can always hope. We've seen the fallout from phony numbers. Maybe people will learn their lesson, and this time around, honest debate and honest numbers will prevail.
Sloan is Newsweek's Wall Street editor. His e-mail is email@example.com.