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More Budget Fudgery
In Plan to Reduce Deficit, White House Turns to Old Projections
WASHINGTON, Jan. 1 - To show that President Bush can fulfill his campaign promise to cut the deficit in half by 2009, White House officials are preparing a budget that will assume a significant jump in revenues and omit the cost of major initiatives like overhauling Social Security.
To make Mr. Bush's goal easier to reach, administration officials have decided to measure their progress against a $521 billion deficit they predicted last February rather than last year's actual shortfall of $413 billion.
By starting with the outdated projection, Mr. Bush can say he has already reduced the shortfall by about $100 billion and claim victory if the deficit falls to just $260 billion.
But White House budget planners are not stopping there. Administration officials are also invoking optimistic assumptions about rising tax revenue while excluding costs for the wars in Iraq and Afghanistan as well as trillions of dollars in costs that lie just outside Mr. Bush's five-year budget window.
The five-year plan, due in February, is likely to reaffirm previous predictions of a $217 billion surge in tax revenues in 2005, the biggest one-year jump on record, and almost $800 billion a year by 2009.
"We still believe we will see new economic growth, with revenues increasing as a share of G.D.P.," said Chad Kolton, a spokesman for the White House Office of Management and Budget, referring to the gross domestic product. "I think our numbers are very realistic because they are consistent with the best estimates of Wall Street and of the Congressional Budget Office."
As in past years, the budget will exclude costs for the wars in Iraq and Afghanistan, which could reach $100 billion in 2005 and are likely to remain high for years to come. The budget is also expected to exclude Mr. Bush's goal to replace Social Security in part with a system of private savings accounts, even though administration officials concede that such a plan could require the government to borrow $2 trillion over the next decade or two.
Among the costs that are expected in the five years after 2009 are nearly $1 trillion to make Mr. Bush's tax cuts permanent, nearly $500 billion for the new Medicare prescription drug program and at least $400 billion to address widely acknowledged problems with the so-called alternative minimum tax.
Many analysts are dubious about the long-term plan. The nonpartisan Congressional Budget Office has estimated that deficits will remain well above $300 billion if Mr. Bush's tax cuts are made permanent and if Iraq war costs taper off gradually. On Wall Street, analysts at Goldman Sachs predict that budget deficits will total about $5 trillion over the next 10 years.
"I've been watching this more than 30 years, and I have never seen anything quite this egregious," said Stanley Collender, a longtime author on budget issues and a senior vice president at Financial Dynamics, a communications firm in Washington.
"They are cutting the deficit from a number they never believed in the beginning," Mr. Collender said, referring to the decision to measure progress against the unrealized $521 billion deficit projection. "What if they had forecast that the deficit would be $800 billion last year? Would they take credit for having cut it by half?"
White House officials are making several budgeting decisions that make their tax revenues look higher and their spending look lower than many analysts think is realistic.
The first is to exclude a wide range of future costs for proposals, like those for military operations in Iraq, that White House officials say are impossible to predict.
Mr. Bush has consistently refused to include Iraq costs in his annual budget request, seeking money through a supplemental appropriations bill that lies outside the official budget. The White House asked for and received $87 billion for the last fiscal year, as well as another $25 billion to cover the first few months of the 2005 fiscal year. The administration is expecting to ask for as much as $80 billion more in the next few months, but it will not include any cost estimates in Mr. Bush's budget for the 2006 fiscal year.
"My own preference is to wait until the last possible moment, in order to have the best idea of how much will be needed," said Joshua B. Bolten, director of the Office of Management and Budget, in a recent meeting with reporters.
Administration officials are omitting a second big group of costs for goals Mr. Bush has identified but not formally proposed.
By far the biggest of these is his plan to privatize Social Security in part and let people divert some of their payroll taxes to private accounts.
Republican and Democratic analysts alike say the proposal would require the government to incur "transition costs" of $2 trillion or more over the next decade or two. That is because payroll tax revenue would immediately plunge, while benefits owed to retirees would decline only gradually.
Administration officials say any such transition costs should be treated separately from the regular budget, because they would eventually be recouped as benefits decline sharply over the next 75 years.
But the issue poses a ticklish problem for the administration, because it is already using surplus revenues in the Social Security trust fund to cover part of the annual budget deficit. The Social Security and Medicare trust funds took in about $146 billion more than they paid out in benefits in the last fiscal year, which reduced the government's overall deficit to $413 billion from about $560 billion.
One idea to prevent private savings accounts from causing an abrupt rise in annual deficits is to treat deposits into private savings accounts as a "transfer" within the government. Another idea is to include all the borrowing for transition costs in an account that would be separate from the government's operating budget.
White House officials say it is reasonable to treat the expected transition costs separately, because they will eventually be repaid as the government's obligation to pay benefits declines sharply after 30 or 40 years.
"These aren't costs, they are savings," said Scott McClellan, Mr. Bush's spokesman, at a recent news conference.
Another major cost that will be excluded from Mr. Bush's budget stems from the alternative minimum tax, a parallel income tax that was originally created to prevent wealthy taxpayers from taking too much advantage of sophisticated tax breaks.
Because the alternative minimum tax is not indexed for inflation, it will engulf more than 20 million additional families by 2009 - a prospect that Republicans and Democrats alike have pledged to prevent.
But repealing the tax would reduce projected tax revenues by $87 billion in 2009 alone and more than $500 billion by the end of 2014.
Almost none of that expense is expected to be in Mr. Bush's coming budget. Mr. Bolten and other officials now suggest they will include a proposal for the alternative minimum tax in Mr. Bush's broader plan to overhaul the tax code.
But that plan will not be ready until late in 2005 and possibly not until 2006.
Thus far, Mr. Bush's plan to reduce the deficit has heavily rested on the assumption that tax revenues will rise as economic growth accelerates.
In a twist, the White House budget for last year significantly underestimated tax revenue for 2004. Officials predicted that tax revenues would inch up only $16 billion, when they actually rose 5.5 percent, or about $100 billion.
Administration officials are expected to project a record surge of at least $200 billion for 2005. That would be an increase of more than 10 percent, twice as big as the jump in 2004, and it would be followed by additional big jumps for the next five years.
White House officials declined to spell out their revenue forecasts. But their forecast last summer showed a jump of more than $200 billion, and White House officials say they continue to expect tax revenues will climb faster than the economy for the next few years. The underlying forecast for economic growth is essentially unchanged.
But analysts say the administration expectations may prove optimistic.
Even though the economy grew at a rapid pace of 4 percent in 2004, and corporate profits soared at double-digit rates, federal tax revenues were only 16.2 percent of the gross domestic product last year, the lowest level since the early 1950's. Despite a $100 billion increase in 2004, tax revenues were still lower then than they were when Mr. Bush took office in 2001.
White House officials say they expect that trend to reverse sharply, with tax revenues to climb back to almost 18 percent of gross domestic product by 2009. If the administration adheres to its earlier forecasts, that would translate to a surge in tax revenues to more than $2.7 trillion in five years, from $1.87 trillion.
If that proves accurate, Mr. Bush will have a good chance of cutting his budget deficit in half. But that could still leave big and rising costs for Medicare and tax cuts that will sink in only after he has left office.
So essentially he's overstated his deficit predictions so he can seem more effective at cutting it, and he's simply NOT INCLUDING his biggest personal moneyholes in the budget AT ALL.
Glad we didn't elect one of those fiscally irresponsible liberals.
This isn't the only budgetary fudging that Bush is guilty of, just the easiest to point to. At all levels Bush's notion of "it doesn't cost anything if we don't admit the numbers" mindset has permeated nearly every budgetary office in the federal government. The incident where the chief of Medicare threatened to fire his main actuary if he told Congress what Bush's plan would ACTUALLY cost is by no means an isolated incident, and you're fooling yourself if you think that was just something that came about completely independently of the way Bush runs the budget. It seems to me to be the unwritten rule in the Bush administration. The broader mindset, of "We don't have to accept reality if we simply never admit it" casts a shadow over nearly all aspects of Bush policy these days, but it's particularly maddening with the budget, partially because it's pretty obvious (and thus the sheer chutzpah of it is galling), but also because it's his party that has for many years been the self-proclaimed bearers of the mantle of fiscal responsibility, something they took very seriously right up until they got a guy in the White House.
On that, this is Andrew Sullivan's take, which I agree with:
quote:
Here's a simple question: isn't it a matter of morals not to fiddle the books? The Bush administration has made some promising noises about reducing domestic spending in the last couple of months, but this news is not encouraging.
How can anyone take this administration's fiscal intentions seriously when it engages in this kind of flim-flam? We're now used to the fact that the administration doesn't count the war in its fiscal calculations (what's a few hundred billion when it's other people's money?), but that doesn't make it any the less preposterous. And the strong case for partly privatizing social security is undermined by the president's inability to concede that it will require serious short-term borrowing. All of this is as much a moral failure as an economic one, which is why I'm still befuddled by the anemic conservative outrage. Or is sex the only area in which Republicans care about morality?
I find it nearly impossible to imagine on what grounds Republicans can possibly defend the way Bush handles the budget. Actually, I can. What I heard more than anything (on this board and from talking heads all over during the election) was simply parroting the Bush line. Take the numbers as he gives them at face value and simply not accept any contrary evidence because doing so would force a recognition that Bush might be dishonest. Just plug your ears and shout.
Maddening.
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01-03-2005 07:58 AM
