The Congressional Budget Office reported yesterday that it expects the federal government to run a $331-billion budget deficit for fiscal year 2005. That’s good news, of course, but Republican crowing is painfully misguided.
Republicans interpreted the report as validating the Bush administration’s tax cuts as an engine of economic growth.
“It provides further evidence that the pro-growth policies put in place by Congress and the president are working to strengthen the economy and lower the deficit,” said Sen. Judd Gregg (R-N.H.), chairman of the Senate Budget Committee.
This couldn’t be more wrong. Gregg clearly didn’t spend much time with the CBO report, because if he had, he’d know his “pro-growth policies” are producing a long-term nightmare. An analysis of the of the report by the Center on Budget and Policy Priorities found three key observations about the government’s economic outlook:
* The unanticipated increase in revenues this year is largely the result of temporary factors such as an increase in corporate tax receipts, and revenues in future years are expected to trend back quickly close to the levels projected last March;
* Real economic growth has been slightly slower than CBO forecast earlier this year, and CBO’s outlook for the economy over the next 10 years has become slightly less optimistic — CBO now projects that real gross domestic product will be lower this year and every year for the next 10 years than it had earlier projected (nominal GDP is slightly higher because of higher-than-anticipated inflation this year and next); and,
* There has been essentially no improvement in the bleak deficit outlook for the next 10 years, even excluding the cost of legislation enacted since March. When you take into account the President’s proposed extension of expiring tax cuts, continuation of current Alternative Minimum Tax relief, and a conservative estimate of future funding for the wars in Iraq and Afghanistan, projected deficits never dip below $330 billion over the next 10 years and total $4.0 trillion over the 2006-2015 period.
The CBO report that Republicans are so excited about isn’t a vindication of their policies; it’s the exact opposite.