The good news is the federal budget deficit will only be a third of a trillion dollars this year, the third highest in American history. It’s “good” because it was projected to be much higher. The bad news is the Bush gang looks at the improved budget and believes their policies have worked and everything’s looking great into the future.
The White House predicted on Wednesday that the federal budget deficit would drop sharply this year and that it would continue to shrink for the next four years.
In a midyear update on the budget, the Bush administration said higher tax revenues would reduce this year’s deficit to $333 billion, $79 billion less than in 2004 and $94 billion less than the administration predicted in February.
President Bush and his supporters used the report to claim victory for their supply-side philosophy of cutting taxes to spur economic growth and ultimately tax revenues.
“We got to this point largely because of the president’s pro-growth policies, especially tax relief,” the White House budget director, Joshua B. Bolten, said. “Those policies have strengthened the economy, which is now producing better-than-expected tax revenues.”
None of this is true.
The Center on Budget and Policy Priorities reviewed the OMB’s mid-session report and pointed to several reasons why rhetoric from Bush and his cohorts masks a more alarming reality.
For example, the administration believes first-term tax cuts helped lower this year’s deficit projection. In fact, they have it backwards.
Many of the factors behind the substantial increase in revenues in 2005 are temporary. The expiration of a business tax cut at the end of 2004 is leading to an increase in tax collections of about $50 billion this year, according to past estimates by the Joint Committee on Taxation. In this case, the increase in revenue stems from the termination of a tax cut, not from a tax cut’s effect in spurring the economy.
Similarly, several administration officials suggested the lower deficit this year means lower deficits for the rest of the decade. This isn’t even close to being true.
Commenting on the increase in revenues earlier this month, Congressional Budget Office Director Douglas Holtz-Eakin warned against assuming that the recent increase in revenues significantly changes the budget outlook. “I do hope people are taking this with a grain of salt and not thinking this is 1998 all over again,” Holtz-Eakin said. “There’s simply no question if you take yourself to 2008, 2009, or 2010, that vision is the same today as it was two months ago.” […]
If revenues do not increase in future years at the rate that OMB is assuming, deficits will be significantly higher over the next five years than the deficits estimated in the Mid-Session Review. Even in the unlikely event that revenues are as high as OMB assumes, deficits still will be considerably higher than OMB is projecting, because of costs that the Administration has not included in its deficit estimates.
Indeed, though few media outlets noted it, yesterday’s OMB report includes literally no funding for Iraq, Afghanistan, or a broader war on terrorism after 2006. Not one penny.
So, what we have yesterday is momentarily good news. I’m glad. But the deficit is poised to go back up, and spending is likely to increase. Republican crowing about a $333 billion deficit is not only foolish on its face, it’s overlooking the mess coming around the bend.