By Stan Collender, NationalJournal.com
© National Journal Group Inc.
Tuesday, Jan. 17, 2006

The Bush administration held a conference call with reporters last week to say that the 2006 deficit would be $400 billion or more.

	The White House has so little credibility on the budget that this year's announcement of a higher deficit was treated by Wall Street and others as a reason to re-examine their estimates rather than as a cause for alarm.

As the White House hoped, the media dutifully reported that number. But, as it almost certainly did not want, the media also reported that this latest Bush administration budget pronouncement should be treated with doubt, skepticism, and perhaps even outright contempt.

The reason is that this president has a well-established history of overstating the deficit early in the year and then taking credit when it turns out to be lower than projected, even if it has done nothing to make that happen.

The best example is the fiscal 2004 deficit, which the administration initially said would be $521 billion. When the actual number turned out to be an all-time high of $413 billion, the White House took credit for it being $108 billion less than it had estimated and said that great progress was being made. (For the record, the fiscal 2004 deficit was $35 billion higher than 2003.)

The irony is that many budget watchers in and out of the federal government have been assuming for some time that the 2006 deficit was likely to be $400 billion or more and, therefore, the White House did not say much that was new or unexpected.

But after several years of saying at the start of the year that the sky was falling, the White House has so little credibility on the budget that this year's announcement of a higher deficit was treated by Wall Street and others as a reason to re-examine their estimates rather than as a cause for alarm.

There is much more behind the administration's conference call with reporters than meets the eye, however.

The White House's announcement of a possible $400 billion deficit estimate was for the current fiscal year -- 2006 -- rather than for the 2007 budget it will send to Congress in early February. That makes it possible, perhaps even likely, that the administration is trying to set us up for a 2007 budget proposal that will show a deficit higher than the $319 billion recorded in 2005 but lower than the new estimate of $400 billion in 2006. That would allow the president and his economic team once again to claim credit for making progress even though 2007 would actually be a retreat from 2005 results.

It's also important to note that the administration told reporters not just that the deficit would be $400 billion this year, but that the increase was almost entirely due to spending related to Hurricane Katrina. Apparently, there was no mention of the additional spending for Iraq and Afghanistan, the impact of any additional revenue changes, or the cost of the prescription drug addition to Medicare. The announcement could, therefore, have been more designed to get the coming budget debate focused on domestic spending.

This seems likely given the current leaks about the administration's 2007 budget proposal. The word is that the president is going to propose that nonmilitary, nonhomeland security domestic appropriations be reduced by 5 percent. This hard sell in an election year would be a bit easier for the White House to propose if the deficit is understood to be rising and that spending is to blame.

The conference call with reporters might have generated less skepticism had it explained some of the details that supported its $400 billion projection. For example, although it stated that Katrina-related spending was to blame for the increasing deficit, the administration did not provide details on how much of the already approved aid will actually be spent in 2006. The amount spent so far has been way below expectations and the failure to provide additional information about this key point is leading many to believe that the White House is giving itself lots of room to claim a budget victory when the year is over.

It is unclear whether the $400 billion estimate includes the fiscal 2006 supplemental for Iraq and Afghanistan expected to be needed in the next few months. There is also no way to know whether it assumes the 2006 revenue loss associated with the alternative minimum tax fix Congress failed to enact before it adjourned in December but is eventually expected to be adopted retroactive to Jan. 1.

It is also not known whether the budget impact of the spending and tax reconciliation bills that are still pending have been included. It could be that the $400 billion deficit estimate assumes the revenue reduction from the tax bill but not the spending cuts. The impact of the spending reductions on the deficit might be added later when or if that legislation is enacted.

We won't know about any of this at least until the Bush 2007 budget is released in a few weeks. In the meantime, even if it is really, truly and finally at the door, after crying "Wolf!" on the deficit for so long, far fewer people believe the White House when it is shouting yet again.

Question Of The Week
Last Week's Question: Last week's question asked readers to come up with a Super Bowl-like name for a federal budget championship game. There were lots of very strong contenders, but the winner of the "I Won A 2006 Budget Battle" pennant is Bruce Post, director of federal affairs for the Vermont Student Assistance Corp., for his recommendation that it be called "The Duper Bowl." According to Bruce, the name is appropriate "Given the on-going, almost addictive, use of smoke and mirrors to convey the impression that a particular budget does something it actually does not do." Not only does Bruce get the pennant to proudly display where his friends, family and colleagues are most likely to see it, but he also gets two tickets on the 50 billion yard line to watch the big game.

This Week's Question. I'm willing to bet that lots of readers get this one wrong. The president is required by the Budget and Accounting Act of 1921 to send her or his budget to Congress. The question: To whom in Congress does the president actually send the budget?

Click here to send in your response, which must be received by 8 p.m. EST Saturday, Jan. 21, 2006. You must include a mailing address so we can send you the "I Won A 2006 Budget Battle" pennant if you win. If more than one person submits a similar winning response, the winner will be selected at random from that group.

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 pennant actually gets to you.

-- Stan Collender is a NationalJournal.com contributing editor and general manager of the Washington, D.C., office of Financial Dynamics Business Communications. A frequent speaker on the budget and economy to audiences across the country, he is also author of "The Guide to the Federal Budget." His e-mail address is secollender@nationaljournal.com.

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