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White House budget writers rely on some luck and pluck

To show that President Bush can fulfill his campaign promise to cut the deficit in half by 2009, White House officials are preparing a budget that will assume a significant jump in revenues and omit the cost of major initiatives like overhauling Social Security.

To make Bush's goal easier to reach, administration officials have decided to measure their progress against a $521-billion deficit they predicted last February rather than last year's actual shortfall of $413-billion.

By starting with the outdated projection, Bush can say he has already reduced the shortfall by about $100-billion and claim victory if the deficit falls to just $260-billion.

But White House budget planners are not stopping there. Administration officials are also invoking optimistic assumptions about rising tax revenue while excluding costs for the wars in Iraq and Afghanistan as well as trillions of dollars in costs that lie just outside Bush's five-year budget window.

The five-year plan, due in February, is likely to reaffirm previous predictions of a $200-billion surge in tax revenues in 2005, the biggest one-year jump in history, and an increase of more than $700-billion a year by 2009.

"We still believe we will see new economic growth, with revenues increasing as a share of GDP," said Chad Kolton, a spokesman for the White House Office of Management and Budget, referring to the gross domestic product. "I think our numbers are very realistic because they are consistent with the best estimates of Wall Street and of the Congressional Budget Office."

As in past years, the budget will exclude costs for the wars in Iraq and Afghanistan, which could reach $100-billion in 2005 and are likely to remain high for years to come. The budget is also expected to exclude Bush's goal to replace Social Security in part with a system of private savings accounts, even though administration officials concede that such a plan could require the government to borrow $2-trillion over the next decade or two.

Among the costs that are expected in the five years after 2009 are more than $500-billion to make Bush's tax cuts permanent, nearly $500-billion for the new Medicare prescription drug program and at least $400-billion to address widely acknowledged problems with the so-called alternative minimum tax.

Many analysts are dubious about the long-term plan. The nonpartisan Congressional Budget Office has estimated that deficits will remain well above $300-billion if Bush's tax cuts are made permanent and if Iraq war costs taper off gradually. On Wall Street, analysts at Goldman Sachs predict deficits will total about $5-trillion over the next 10 years.

"I've been watching this more than 30 years, and I have never seen anything quite this egregious," said Stanley Collender, a longtime author on budget issues and a senior vice president at Financial Dynamics, a communications firm in Washington.

"They are cutting the deficit from a number they never believed in the beginning,"Collender said, referring to the decision to measure progress against the unrealized $521-billion projection. "What if they had forecast that the deficit would be $800-billion last year? Would they take credit for having cut it by half?"

White House officials are making several budgeting decisions that make their tax revenues look higher and their spending look lower than many analysts think is realistic.

The first is to exclude a wide range of future costs for proposals, like those for Iraq, that White House officials say are impossible to predict.

Administration officials are omitting a second big group of costs for goals Bush has identified but not formally proposed. By far the biggest of these is his plan to privatize Social Security in part and let people divert some of their payroll taxes to private accounts.

Thus far, Bush's plan to reduce the deficit has heavily rested on the assumption that tax revenues will rise as economic growth accelerates.

In a twist, the White House budget for last year significantly underestimated tax revenue for 2004. Officials predicted that tax revenues would inch up only $16-billion, when they actually rose 5.5 percent, or about $100-billion.

Administration officials are expected to project a record surge of at least $200-billion for 2005. That would be an increase of more than 10 percent, twice as big as the jump in 2004, and it would be followed by additional big increases for the next five years.

But analysts say the administration expectations may prove optimistic.

Even though the economy grew at a rapid pace of 4 percent in 2004, and corporate profits soared at double-digit rates, federal tax revenues were only 16.2 percent of the gross domestic product last year, the lowest level since the early 1950s. Despite a $100-billion increase in 2004, tax revenues were still lower then than they were when Bush took office in 2001.

White House officials say they expect that trend to reverse sharply, with tax revenues to climb back to almost 18 percent of gross domestic product by 2009. If the administration adheres to its earlier forecasts, that would translate to a surge in tax revenues to more than $2.7-trillion in five years, from $1.87-trillion.

If that proves accurate, Bush will have a good chance of cutting his budget deficit in half. But that could still leave big and rising costs for Medicare and tax cuts that will sink in only after he has left office.

BUSH'S BUDGET

WHAT'S THE DIFFERENCE? In February 2004, the White House budget office predicted a year-end deficit of $521-billion. The actual figure turned out to be $413-billion. Using the prediction instead of the reality as a starting point puts President Bush more than $100-billion closer to his deficit reduction goal.

WHAT'S LEFT OUT: Costs for the wars in Iraq and Afghanistan, which could reach $100-billion in 2005, along with any costs associated with converting Social Security funds to private savings accounts.

WHAT MUST HAPPEN: To attain its goal of a $260-billion deficit, the White House budget counts on dramatically rising tax revenues from U.S. economic growth at twice the rate of 2004's.

WHAT IF . . .? If the Bush tax cuts become permanent, analysts at Goldman Sachs predict that budget deficits will total about $5-trillion over the next 10 years.

Source: New York Times

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