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Summary Table 3, or S-3, is one of the most standard - and basic - tables in President Bush's budget. And it contradicts virtually every major claim the administration is making about what it is proposing. (Click here for a PDF of S-3.)

S-3 starts with the baseline - that is, the White House's estimate of the surplus or deficit if there are no changes in what the federal government is doing. Budget aficionados often say that the baseline shows what will happen if the federal government is on automatic pilot.

The Office of Management and Budget-prepared baseline shows that the deficit will decline precipitously without the changes in tax and spending policies the White House is proposing. In fact, the baseline shows that the budget will be in surplus starting in 2006 and that the surplus will increase every year thereafter. But S-3 also indicates that implementing the Bush budget would greatly increase the deficits in 2003-2005 and obliterate the projected surpluses in 2006-2008.

In other words, in spite of the official line from the White House, S-3 shows unambiguously that the administration's fiscal 2004 budget proposes a massive annual increase in the deficit.

S-3 also shows that the administration's claim that the deficit will bottom out because of its budget is completely wrong. The table shows quite clearly that the deficit would decline slightly from 2005 to 2007 but start increasing again in 2008. (The deficit would likely continue to grow in 2009 and beyond but, in contrast to the common practice in recent years, the administration chose to do five-year rather than 10-year forecasts.)

OMB Director Mitch Daniels told reporters last Monday that the best way to eliminate the deficit is to get the economy growing. He and other administration economic spokesmen also at least implied this budget will do just that.

But the numbers in S-3 belie Daniels' statement. If this budget increases economic growth to the extent and as quickly as the White House says it will, why doesn't S-3 show the deficit being eliminated or at least reduced substantially at some point between now and 2008?

Contrary to what Daniels indicated, S-3 seems to suggest that even if the Bush budget is implemented without change, the economy will not grow as fast as is needed to reduce the deficit. It also makes the connection between economic growth and balancing the budget appear far less strong than Daniels would have us believe.

S-3 shows very convincingly that the economic growth the president says will result from his policies will not be anywhere near enough to offset his proposed permanent changes in outlays and taxes. Contrary to what the White House is saying, the Fiscal 2004 budget projects large structural, not cyclical, deficits, which are very likely to persist even through an economic expansion. And the fact that no one is forecasting such a boom means the deficits the administration says will be short-lived are in fact likely to be around for quite some time.

S-3 also indicates that the increases for defense and homeland security (two of the administration's top priorities) are matched by the projected increase for "related debt service" - that is, for higher interest payments on a national debt expanded by these growing deficits. In fact, S-3 shows that by 2006, the annual increase for interest payments will be larger than the increase in defense spending.

This puts to rest another of the White House's claims - that its budget will reduce the size of government. S-3 shows that, while the president's budget does propose tax cuts and limits the growth in appropriated spending, it will also significantly increase the government's participation in the credit markets. Rather than reduce the size of the government, the Bush 2004 budget will really just be changing its shape.

Question Of The Week

Last Week's Question. In response to last week's question, many "Budget Battles" readers noted several reports that the Congressional Budget Office completes at the beginning of the year, but only a handful answered with the two major publications, which is what was actually asked. The reports are "An Analysis of the President's Budgetary Proposals" and "Budget Options." This last report used to be called "Reducing the Deficit: Spending and Revenue Options," but was renamed when surpluses replaced deficits. The winner of the "I Won A 2003 Budget Battle" mouse pad, who was selected at random from all of those who submitted the correct response, is Sandra Yamin from Lehman Brothers in New York City.

Attention all mouse pad winners: They should arrive shortly. Please be patient just a little while longer.

This Week's Question. Valentines Day is just around the corner, so this is the perfect time to ask the following of all the "I Won A 2003 Budget Battle" mouse pad seekers out there. The question: "What is the most appropriate Valentines Day gift to give the federal budget decision maker on your list?

Send your response to scollender@nationaljournal.com by 5 p.m. on Saturday, Feb. 15, 2003. You must include your mailing address so the mouse pad can be sent if you win. If there are similar winning responses, the mouse pad winner will be selected at random from those entries.

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