THE BUSH administration announced last week its revised figure for this year's budget deficit: $445 billion. This, or so the spin goes, is good news, because the original forecast was even higher -- $521 billion. But outside budget experts had warned that the forecast was inflated, which tarnishes any celebration of the new number. Not that the administration was deterred. "This improved budget outlook is the direct result of the strong economic growth the president's tax relief has fueled," crowed Office of Management and Budget Director Joshua B. Bolten.
Mr. Bolten's argument makes little sense: Economic growth has been no faster than the administration anticipated when it predicted the higher deficit. In any event, $445 billion marks the highest deficit ever (though the administration seems to be setting the stage for a new round of better-than-expected numbers just before Election Day). Only in the administration's upside-down economic world could a deficit $70 billion higher than last year's be hailed as progress.
Does this matter? The administration says not: The deficit, though "unwelcome," is not high when measured as a percentage of the economy. Moreover, the administration assures worrywarts, the deficit will be cut in half in five years. The first assertion is true but misleading, the second likely to be both untrue and misleading. The administration is correct that the deficit as a slice of the gross domestic product is the more telling indicator. But the size of this year's deficit is masked by the surplus in the Social Security trust funds; without that ample padding, as budget expert Stan Collender has noted, the deficit would be more than 5 percent of GDP rather than 3.8 percent, far closer to the worrisome 1983 record of 6 percent, when the Social Security trust fund was empty. So a true apples-to-apples comparison is hardly reassuring.
As for the promise to cut the deficit in half, the administration manages that feat only by ignoring known or likely costs, such as fixing the alternative minimum tax, funding operations in Iraq and paying for its announced defense plans. The liberal-leaning Center on Budget and Policy Priorities estimates the total in omitted costs at more than $140 billion -- meaning that a more honest estimate of the 2009 deficit would be at least $370 billion and perhaps as high as $410 billion.
Worse, the Bush administration's focus on 2009 -- and for that matter Democratic presidential nominee John F. Kerry's similarly suspect pledge to cut the deficit in half in four years -- obscures the real problem: what happens after 2009 as baby boomers begin to retire. That alone -- not to mention other budgetary pressures such as the repeal of the estate tax -- means that any decline in the deficit in the next several years will be only a passing phenomenon. The trajectory after that points steeply up.
As the administration notes, tax cuts account for 29 percent of the deterioration in the budget balance in the past three years. The lesson of the new deficit numbers is that these cuts are a cost the country cannot afford.