Bush's Budget Deficit and the End of the Rosy Scenario
In case panicked financial markets, rising unemployment, surging inflation and a credit crunch weren't enough cause for worry, Congressional Budget Office director Peter Orzag today added the mushrooming federal budget deficit to the mix. Coming as President Bush and Congressional leaders are conferring on a massive new economic stimulus package, the CBO estimated a $250 billion gap in 2008, up from $163 billion the previous year. Now Bush's budgetary sleight of hand, it would appear, is about to fall victim to the rosy scenario.
Back in the 2004 campaign, George W. Bush famously promised to halve the federal budget deficit by 2009. But that commitment, as the Washington Post, CNN and others noted at the time, was premised upon two parallel frauds.
First, Bush's pompous prediction used as its baseline a wildly inflated White House deficit forecast of $521 billion, well above the CBO's estimate and the actual figure of $413 million. More importantly, President Bush conveniently chose 2009 as his finish line, the year before his tax cuts were set to expire. Making them permanent (which he and all of the GOP presidential candidates endorse) would blow another $2.2 trillion hole in the federal budget by 2014. In addition, other required costs (such as the Medicare prescription drug plan) and likely federal tax code adjustments (most notably fixing the Alternative Minimum Tax) would add hundreds of billions more in red ink to the national ledger. And all of that is before the deluge of Social Security and Medicare expenditures looming with the retirement of the baby boom generation.
Nonetheless, when the budget deficit dipped last year to $163 billion, the Bush administration proclaimed victory and vindication. On its web page titled, "Fiscal Discipline: Managing for Results," the White House crowed:
"The deficit has been cut in half three years ahead of the President's 2009 goal. Historic revenue growth and a continued commitment to spending restraint contributed to this reduction."
As it turns, not so much.
Testifying before Congress, the CBO's Orzag summarized an agency report that put the 2008 deficit at $219 billion before the additional costs associated with the wars in Iraq and Afghanistan as well as the stimulus package are factored in. The coming defense outlays will push the deficit to $250 billion. And with a price tag estimated in the neighborhood of $150 billion for this year and next, the coming stimulus bill could easily drive the Bush deficit to swell to $350 billion by the end of 2008.
While not predicting a recession outright, the CBO report stated the clear impact of the American economic slowdown. "After three years of declining budget deficits," the report concluded, "a slowing economy this year will contribute to an increase in the deficit." As Orzag noted, President Bush and his successors will have few policy choices to addressing the exploding deficit:
"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability."
Alas, the same free lunch philosophy that fueled President Bush's bogus 2004 promise informs the nonsensical prescriptions of his would-be Republican successors. Tax cuts, which GOP doctrine now claims is the universal cure-all for surpluses and deficits, male pattern baldness and erectile dysfunction, are at the center of every Republican economic program. Despite the fact that the Bush tax cuts accounted for half of the federal budget deficit (as the Center on Budget and Policy Priorities [CBPP] demonstrated), McCain, Giuliani and Romney would make them permanent.
That's a promise Americans can do without.
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The neocon starve-the-beasters are hoist by their own petard!
Posted by Doc Rock on January 23, 2008 5:00 PM