GovernmentExecutive.com

Five months ago, "Budget Battles" showed that SummaryTable 3, or S-3, in President's Bush's fiscal 2004 budget contradicted virtually every major claim the administration was making about what it was proposing. Now, in the president's midsession review that was released on July 15, Summary Table 9 does the same thing.

Like S-3, T-9 starts with the baseline - the White House's estimate of the deficit that will occur if there are no changes in what the federal government is doing and the economy performs as projected.

The midsession review shows that the baseline deficit would decline continuously without the tax and spending policies the White House is proposing. The deficit would fall below $100 billion in fiscal 2007 and then continue to decline to $62 billion in fiscal 2008. In fact, without the White House's proposals the deficit would fall steadily and dramatically - by 86 percent overall - between 2004 and 2008.

Contrary to what the administration is claiming, T-9 shows conclusively that adopting the Bush policies would greatly increase the deficit. Long after the economy supposedly would have fully recovered, the deficit would remain.

In other words, in spite of the official policy pronouncements from the White House, T-9 clearly shows that the administration is proposing a massive annual nominal increase in the deficit compared to what would otherwise occur. It also shows that the White House does not have a plan to reduce these deficits but rather apparently is content to let them happen.

T-9 also suggests that the deficit will start climbing again toward the end of the five-year period displayed in the midsession review. The table shows quite clearly that, because of the administration's policies, the deficit would decline from 2005 to 2007 but start increasing again in 2008. The deficit would likely continue to grow in 2009 and beyond, but the five-year rather than 10-year forecast now included in the president's budget makes that hard to verify. That is likely the way the White House wants it.

The biggest lesson of T-9, however, is that the administration's claim we will grow out of the deficit is wrong. The forecast and projections in this table are based on the assumption that the economy will be growing substantially and continuously - by an average of more than 3 percent a year - and the deficit is still projected to start climbing again.

In fact, the administration seems to have used the midsession review to quietly back off its claim that the solution to the deficit problem is higher economic growth. Now it is talking about growth only as "the key to improvement in the budget outlook" (emphasis added), and is saying that the change from the $475 billion forecast for fiscal 2004 to $226 billion projection in 2008 qualifies both in nominal terms and as a percentage of GDP.

There are several reasons why this argument should be rejected. First, it is a picture of the total deficit - that is, including the surplus in the Social Security surplus, which the White House expects to grow over the entire period. Without Social Security, the on-budget deficit will still be about four percent of GDP by 2008. And while it would have declined from the administration's high point of $639 billion in fiscal 2004, that 27 percent reduction is far less than the 52 percent the administration is saying constitutes budget victory.

Second, the deficit numbers over the entire period are likely understated, perhaps substantially. The administration has already admitted that the midsession review does not include any of the costs of continuing military or peacekeeping efforts in Iraq and Afghanistan, and it certainly does not include the expenses involved in sending U.S. troops to Liberia. Moreover, there's talk that another tax cut will be included in the administration's fiscal 2005 budget, and that revenue loss has not been included in the budget estimates either.

Ultimately, it is hard not to conclude that T-9 shows the White House's policies will lead to large structural rather than economically induced on-budget deficits that will persist even through the projected economic expansion. That means there is either a spending cut on the horizon, or we'll be talking about the deficit for quite some time.

Question Of The Week

Last Week's Question. Maybe it's my own fault, but some of those people who responded to last week's question in their continuing quest of an " I Won A 2003 Budget Battle" mouse pad simply refused to believe that I could ask anything that seemed so straightforward. But I did. What are the top four sources of federal receipts?

According to the Office of Management and Budget midsession review in fiscal 2002, they were individual income taxes ($858 billion), social insurance and retirement receipts ($700 billion), corporate income taxes ($148 billion) and excise taxes ($67 billion). The mouse-pad winner, who was selected at random from all those who knew how to use the Internet and find the answer on the OMB Web site, is Dan Flaherty, with the Department of Transportation in Cambridge, Mass.

This Week's Question. Last week it was revenues; this week it's spending. The question: In terms of outlays, what were the top four federal budget functions in fiscal 2002?

Click here to send in your response. Your answer must be received by 5 p.m. PDT on Saturday, Aug. 2, 2003. If there are similar winning answers, the "I Won A 2003 Budget Battle" mouse pad will go to the person selected at random from all those who submit the correct response. You must include your mailing address so the mouse pad can be sent if you are the winner.

Note to government employees: Because of security procedures at many offices and facilities, your home address will be the best way to make sure the mouse pad actually gets to you.

Post a Comment

To post a comment, you must provide a name and a valid e-mail address. Messages must be limited to 400 words. By using this Service you agree not to post material that is obscene, harassing, defamatory, or otherwise objectionable. Although Government Executive does not monitor comments posted to this site (and has no obligation to), it reserves the right to delete, edit, or move any material that it deems to be in violation of this rule.