[tag]Bush[/tag] is going to host a [tag]White House[/tag] event today to announce some [tag]budget[/tag] numbers that, on the surface, appear encouraging. Thanks to unexpected tax receipts, the federal budget [tag]deficit[/tag], which broke a record recently when it topped $400 billion, will be considerably smaller this year, shrinking to about $300 billion.
So, what’s the problem? Even if we put aside the fact that the administration, for the third year in a row, put out unreasonably bad estimates early on, only show “progress” later, a less-severely bad deficit doesn’t change the fact that the [tag]long-term[/tag] [tag]fiscal[/tag] picture is still bleak.
Even economists who hesitate to accuse the White House of playing games say the claims of good news on the budget are unfortunate because they make people unjustifiably sanguine about the government’s current fiscal health.
And the focus on this year’s budget will distract attention from the real budget crisis, which will begin in two years as the eldest of the baby boom generation become eligible for Social Security benefits.
“Our problem is our large long-term deficit, and the sooner we deal with that the better,” said Comptroller General David M. Walker. Walker, who is head of Congress’ Government Accountability Office, warned of “a false sense of security. We’re in much worse shape fiscally today than we were a few years ago.”
The closer one looks at the “good news” Bush will tout today, the less encouraging it appears.
For one thing, tax receipts have grown thanks to the [tag]rich[/tag] getting richer, but the wealth isn’t trickling down.
“This all relates to the widening income disparities between high-income individuals and the rest of the population,” said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities.
Among the fastest-growing types of [tag]revenue[/tag] were corporate income [tag]taxes[/tag], which rose 26 percent in the nine months ending June 30, according to the CBO. Fueling that growth were skyrocketing corporate profits, which on a pretax basis reached 12.7 percent of GDP in the first quarter of 2006, the highest level since 1950, said Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc.
“We’ve had strong growth in [tag]profits[/tag], but not very much of an increase in wages and salaries,” Hatzius said.
For another, a modest improvement this year doesn’t change the fact that the current approach is a disaster-in-the-making for future years.
[T]hat does not erase much deeper worries about the budget woes that will beset the economy when members of the baby-boom generation reach retirement age over the next couple of decades. Projected deficits for the middle of the century, though obviously subject to much imprecision, would account for such a large portion of the economy that they would drive the government’s cost of borrowing — and thus interest rates throughout the economy — to unaffordable levels, economists generally agree.
“Even if somehow we balanced the budget by, say, 2010, we would look forward to an enormous fiscal problem,” said Douglas Holtz-Eakin, a former CBO director and Bush White House economist.
“The projections are that the Social Security surplus will peak in 2010, and diminish every year thereafter, so ultimately, instead of collecting 5 cents on the national dollar and paying out 4 1/2 cents, we will continue to collect 5 cents and pay out 7 cents,” Holtz-Eakin said. “And that’s the good news. The bad news is Medicare. The demands on the Treasury go from 4 cents on the national dollar to 22 cents in the next 50 years.”
The administration, in the “Analytical Perspectives” it published with its budget in February, made a similar point, saying, “The budget is on an unsustainable path.”
For that matter, you’re likely to hear a lot of talk today about how 2001 and 2003 tax cuts deserve the credit for the slightly improved budget picture in 2006. But as the NYT noted, the “real revenue growth during the Bush years will be abysmal, averaging about 0.3 percent per capita, versus an average of nearly 10 percent in all previous post-World War II business cycles…. So, the revenue surge is neither a sign that the tax cuts are working nor of sustainable economic growth.”
And, finally, consider this perspective: Bush inherited the largest surpluses in American history, and six years after vowing to keep a balanced budget, the president thinks it’s great news that the deficit is only $300 billion.
The Bush gang will be all smiles today. It’s only because they can’t keep a straight face while repeating such obvious nonsense.