George W. Bush has lately taken to explaining his economic plans by pulling out four dollar bills to represent the projected budget surplus. Two dollars, he explains, will be used to support Social Security; one to pay for new programs like prescription drug insurance; and one will be used to cut taxes.
"I think it's fair, I think it's right that one quarter of the surplus go back to the people who pay the bills," he declared last week.
Nice rhetorical device; too bad about the arithmetic. An honest presentation, using numbers from Bush's own economists, would allocate not $1 but $1.40 to tax cuts, only 45 cents to new programs _ and would admit that he got 25 of those 45 cents by violating his own party's promise not to touch either the Social Security or Medicare surpluses.
The Congressional Budget Office projects a surplus over the next decade, including Medicare and Social Security, of $4.6-trillion. As I pointed out last month, this is unrealistically optimistic, but never mind. One-quarter of that surplus is $1.15-trillion. Meanwhile, Bush's economists concede that his tax plan will reduce the surplus by $1.6-trillion. So representing the cost of the tax cut by just one of those four dollar bills is a $450-billion misstatement.
On the other side, Bush's proposed spending on new programs is far lower than that other dollar bill would suggest _ about 10 percent of the surplus, not 25 percent. Indeed, some of Bush's penny-pinching comes as a shock. With all his huffing and puffing about U.S. military decline, who would have thought that he proposes to increase defense spending by less than 2 percent?
Clearly, Bush remains convinced that he can play by his own rules _ that it doesn't matter whether what he says is true, as long as he lays on the charm. But the story of the bogus bills also reminds us just how bad an idea that tax cut _ originally offered, say the political reporters, to ward off Steve Forbes _ really is.
After all, Bush's routine with the dollar bills isn't just a piece of stagecraft. It's his way of saying that there's plenty of money to play with: That he can secure the future of retirees, give a big tax cut and still have plenty left over _ one dollar out of four! _ for popular new programs. But that just isn't so, as Bush's own plan demonstrates.
Suppose that we agree (as both parties have) that tax cuts and new spending should not cut into the Social Security and Medicare surpluses _ the surpluses those trust funds are now running to prepare for the demographic deluge, the time when baby boomers stop paying in and start collecting benefits. That, even using those unrealistic surplus projections, immediately takes $2.40 of Bush's four dollars off the table, leaving at most $1.60 to be divided between tax cuts and new spending. And a prudent plan would set aside a good part of that $1.60, both because the surplus projections are probably too optimistic and because our current peace and prosperity aren't guaranteed to last. But Bush has already promised to give away $1.40 in tax cuts. What that leaves him for new spending is not the whole dollar he waves at his audiences, but at most 20 cents.
And now that Bush has caved on the issue of prescription drug insurance _ though he still claims that he can get it at bargain prices _ the additional spending proposed in his plan amounts to about 45 cents out of his four dollars.
How does he find the extra 25 cents? Through selective absent-mindedness. Congressional Republicans have solemnly pledged to put both Social Security and Medicare in "lock boxes," that is, not to count their surpluses as available funds. But while Bush's number-crunchers ostentatiously put the Social Security surplus aside, Medicare somehow goes unmentioned.
The bottom line is that because of that tax cut, Bush's economic plan cannot be both coherent and honest _ and in fact it is neither.
So what is Bush thinking as he stands up there with those dollars in his hands? Does he know that he is saying things that aren't so? Or is he so unfamiliar with his own economic plan that he thinks he is telling the truth? Either way, shame on him.
Paul Krugman is a New York Times columnist and an economics professor at MIT.
New York Times News Service