Phony Budget Tells All

by Clive Crook

Sat. Feb. 9, 2008


A plan to spend $3.1 trillion of taxpayers' money next year ought to be worth a moment's attention. Not so, judging by the reception of the president's budget on Monday. The administration's multivolume plan seemed even more pointless than usual. People had Super Tuesday on their minds -- not to mention that the document is a work of purest fantasy. George W. Bush will be elsewhere in 2009, and his successor will have his or her own ideas about fiscal policy (which Congress will probably also ignore).

One stands in awe at the work that went into these 2,000-plus pages of useless detail. But the main numbers are worth a glance, I promise, now that the excitement of the primaries has subsided for a day or two. The president's proposals are meaningless, of course, but the budget, despite the administration's perfunctory effort at concealment, casts some light on the financial bind that awaits the next president and Congress.

The White House reckons that if its plans went into effect, the budget deficit in the current fiscal year would be a little over $400 billion, compared with its earlier estimate for 2008 of $240 billion.

The reason for the increase is that the economy is slowing down, although the forecasts behind the budget numbers are pretty optimistic about the gentleness of this decline. The plan takes account of the expected cost of the fiscal stimulus that President Bush is negotiating with Congress.

In 2009 the deficit is projected to be approximately the same as this year -- again, more than $400 billion -- compared with less than $200 billion as penciled in a year ago. After that, the White House says, the deficit will resume its gradual downward path, bringing the budget back into balance, as advertised in previous budgets, by 2012.

There they go again: a balanced budget. One of the oddest things about an administration that has set new standards of fiscal excess is this continuing pious attachment to balancing the budget -- or pretending to. No government that actually cared about prudent fiscal policy would have raised spending and cut taxes like this one has. And yet the administration still honors the principles of sound public finance in its numbers. "Grant me chastity and continence," St. Augustine prayed, "but not yet."

That small surplus is not going to happen in 2012 -- not this way, at least. The proposed budget allows for another patching of the alternative minimum tax (the parallel tax code once intended to prevent tax evasion by the rich, now bearing down rapidly and unacceptably on the not-so-rich), but only in 2009. According to the Committee for a Responsible Federal Budget, ongoing indexation of the AMT would add nearly three-quarters of a trillion dollars to the projected deficit over the next 10 years.

And, for some reason, the budget also excludes expected -- and, the White House presumably believes, necessary -- spending on Iraq and Afghanistan. It allows for supplementals of $70 billion next year, but nothing beyond. The actual cost in 2007 was $100 billion higher than that, and it is likely to be another $200 billion in 2008. From there to zero in one more year?

Having ignored all of that, the budget then strives to economize by reducing or eliminating 151 programs -- including some state-run education and job-training efforts. This would leave the states to decide whether to cut the programs or raise their own taxes, since they cannot incur deficits as easily as the federal government can. But even if such cuts could be pushed through, they would raise comparatively little money: less than $20 billion in 2009.

The Bush budget calls for bigger cuts to Medicare and Medicaid, and some of the cuts in fact make sense. The remorseless rise in public spending on health care is the biggest long-term pressure on the spending side of the budget. But the White House has predictably ignored at least one promising avenue for cost reduction recommended by the Medicare Payment Advisory Commission, an expert panel that advises Congress -- namely, curbing spending on Medicare Advantage, the privatized part of Medicare.

Even by the standards of a budget that is dead on arrival, it is difficult to regard the administration's ideas for spending restraint as a serious proposal. When you add in the extra spending on the war, an economic slowdown that is worse than the White House feared, and the revenue shortfall from future AMT fixes, the ritual promise to balance the books by 2012 is hard to credit.

The crux of the matter is, of course, that the White House wants to extend the 2001 and 2003 tax cuts beyond the end of this decade. Doing that is Bush's last real hope of a favorable domestic legacy, and it is the organizing principle of this entire, farcical budget exercise. Erase those tax cuts, and what is left of the president's domestic agenda? But the cost of this extension, together with some smaller tax changes, is nearly $900 billion over five years and $2.3 trillion over 10.

In the end, forget the 2,000 pages. It comes down to this: The president's numbers fail to add up because he wants to protect his tax cuts even though he has no proper plan to curb spending. This is why he had to cook the books, again. The cheating began seven years ago when the tax cuts were first enacted together with the sunset clause appended by the White House's congressional allies. The president and his supporters believed that the clause would never come into force. The numbers were made to look all right by the simple expedient of saying, but never intending, that the tax cuts would be reversed. In the private sector, people go to prison for such stuff.

The nation's budget planning system has broken down. It is a joke and a waste of everyone's time. At some point, perhaps, Congress may summon the will to mend it -- but in the meantime, the next president and Congress have a problem.

If the budget were in fundamental balance, a Democratic administration could plan to raise taxes to pay for universal health care and other good things. Or a McCain administration, let us imagine, could aim to keep taxes low, and match extra spending on defense and national security with cuts, difficult as they might be to achieve, in other projected spending.

The trouble is, the budget is not in fundamental balance. What this new budget proposal shows, without meaning to, is that taxes need to rise merely to pay for current levels of spending. Unwinding the Bush tax cuts does not bring a windfall of revenue to pay for ambitious new programs. If the Democrats want to spend a lot more (and they do -- universal health insurance does not come cheap), it will not be enough to let the Bush tax cuts expire. Additional increases in revenue will be needed. A Republican administration, in the same way, would need to cut nondefense spending twice over if it made the Bush tax cuts permanent, once to pay for higher spending on defense and national security, and then again to make good the existing revenue shortfall.

The bleak truth that may take a year or two yet to dawn on Washington is that, whatever the outcome of November's election, the next president will most likely have to plan for some combination of higher taxes and lower spending on current entitlements. As part of this unappealing mix, curbing the growth of Medicare spending is non-negotiable: Otherwise, the United States is heading for European levels of taxation, with or without universal health care. A Democratic administration would find itself unable to pay for all it wants to do merely by raising taxes, just as a Republican administration would be unable to pay for all it wanted to do merely by cutting "wasteful government programs."

One of the surprises of the presidential primaries has been the popularity of candidates capable of appealing to moderates and independents. Even a few months ago, it seemed that the campaigns might further polarize the country's fractious politics, as candidates focused on impressing their parties' respective bases.

Not so. The success of Barack Obama and John McCain has a lot to do with their perceived electability in November, which in turn is linked to their popularity with moderate and independent voters. Does this give grounds for optimism? Could a bipartisan approach to fiscal responsibility be successfully pitched to the public?

I hope so, but I doubt it. Welcome as a new spirit of cooperation would be, tired as the country says it is of partisan gridlock, no easy breakthrough on taxes and spending is around the corner. On this, Clinton/Obama and McCain have no common ground. Which spending programs could the Democrats think of cutting? Which taxes could the Republican think of raising? In the end, some of both will be needed. I cannot see it happening without a fight.

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