Bush's Pinocchio Budget

OP-ED COLUMNIST

Another Bogus Budget

By PAUL KRUGMAN

Published: February 3, 2004
Well, whaddya know. Even as the Republican leadership strong-armed the Medicare drug bill through Congress, the administration was sitting on estimates showing that the plan would cost at least $134 billion more than it let on. But let's not make too much of the incident. After all, it's not as if our leaders make a habit of faking their budget projections. Oh, wait.
The budget released yesterday, which projects a $521 billion deficit for fiscal 2004, is no more credible than its predecessors. When the administration promises much lower deficits in future years, remember this: two years ago it projected a fiscal 2004 deficit of only $14 billion. What's new this time is that the administration has decided to pay lip service to conservative complaints about runaway spending.
Over the past few months, many pundits have obediently placed the onus for rising deficits on "a vast increase in discretionary domestic spending," or words to that effect. By the way, the Heritage Foundation, which has orchestrated this campaign, is cagier than those pundits; it covers itself by relying on innuendo, never saying outright that domestic discretionary spending is the source of the deficit.
To mollify these critics, the new budget purports to shrink real domestic discretionary spending. This won't happen; even if it did, it would have a negligible impact on the deficit. But it isn't just a fake solution — it's a response to a fake problem.
The prime cause of giant budget deficits is a plunge in the federal government's tax take, which fell from 20.9 percent of G.D.P. in fiscal 2000 to a projected 15.7 percent this year, the lowest share since 1950. About 45 percent of this plunge can be attributed to the Bush tax cuts. The rest reflects the end of the stock market bubble, the still-depressed economy and — probably — growing tax sheltering and evasion.
It's true that increased spending also contributes to the deficit, and that there has been a substantial increase in discretionary spending — spending that, unlike such items as Social Security payments, isn't automatically determined by formulas. But the bulk of this increase has been related to national security.
Traditional budget measures distinguish between defense and nondefense discretionary spending. Even by these measures, defense accounts for most of the increase in recent years. But a better measure would group homeland security and other costs associated with 9/11 with defense, not domestic programs. The Center for American Progress — confirming related work by the Center on Budget and Policy Priorities — estimates that from 2000 to 2004 security-related discretionary spending rose to 4.7 percent of G.D.P. from 3.4 percent, while nonsecurity spending rose to only 3.4 percent from 3.1 percent.
In other words, the role of nonsecurity spending in the plunge into deficit is trivial, compared with tax cuts and security spending. (Credit where credit is due: the administration's budget numbers show the same thing.) And even severe austerity on nonsecurity spending won't make a significant dent in the deficit.
So what will it take to get the budget deficit under control? Unless Social Security and Medicare are drastically cut — which is, of course, what the right wants — any solution has to include a major increase in revenue.
Many Democrats have called for a partial rollback of the Bush tax cuts, preserving the "middle class" cuts — those that convey at least some benefit to the 77 percent of taxpayers in the 15 percent tax bracket or below. Such a partial rollback would have reduced this year's budget deficit by about $180 billion; that would help, but one hopes politicians realize that it's not enough.
Another major source of revenue could be a crackdown on tax loopholes and tax evasion, which has reached epidemic proportions. In particular, what's going on with the tax on corporate profits? That source of revenue is down, as a percent of G.D.P., to 1930's levels. No, that's not a misprint. And receipts are not growing nearly as fast as one would expect, given an economic recovery that has bypassed workers but given big gains to their employers. An administration that actually tried to make corporations pay their taxes might be able to find $100 billion or more each year.
An eventual budget solution will involve all this, and more. But the first step is to stop looking for villains in all the wrong places.

February 03, 2004, 8:51 a.m.
Again, What Fiscal Responsibility?
On spending, the GOP has little room to criticize.

By Veronique de Rugy

J. Edward Carter's recent guest column for NRO — entitled "Cringe-onomics: Did any of the Democratic presidential contenders take Economics 101?" — was somewhat on target. It's true that Democrats don't know much about economics. For instance, they usually fail to understand why tax cuts trigger economic growth and why increasing the minimum wage harms those it is meant to help. Carter is also right to ridicule the call by John Edwards to return to fiscal discipline while proposing "a slew of new federal spending programs."
However, considering the GOP's record on spending, it seems that Republicans do not have much room to criticize.

Recall that when the Republicans gained control of Congress in 1994, they promised to eliminate the deficit and reduce wasteful spending. In May 1995, the House of Representatives even approved a budget plan calling for the elimination of three cabinet departments: Education, Commerce, and Energy. Many advocates of limited government and fiscal responsibility believed that this partisan change — greater Republican power — could, in fact, achieve this goal. For several years, the GOP upheld its commitment to fiscal responsibility by modestly curtailing spending growth and balancing the budget (in 1998) for the first time since the 1960s. Unfortunately, the balanced budgets of the late-1990s created an easy-money mindset in Washington, which sparked a spending spree that continues today.

Total outlays have increased by 28.8 percent in the first four years of the Bush administration, with discretionary spending rising by 40.8 percent (defense spending by 40.2 percent and non-defense by 41.3 percent). Moreover, after only four years in office, President Bush is heading to the record books as one the biggest-spending presidents ever. A look at the ten largest annual percentage increases in discretionary real federal outlays in the last 50 years shows that the Bush administration's fiscal year 2002, 2003, and 2004 discretionary-spending increases all made the list of the biggest increases.

Both Congress and the administration deserve blame for recent spending increases. For example, the president's FY2004 budget requested $429 billion in non-defense spending. But actual FY2004 spending will end up being at least $475 billion. For example, when an $87 billion supplemental spending bill was added to pay for operations in Iraq, neither Congress nor the president attempted to offset it with spending cuts elsewhere. Finally, when Congress put together the horrible omnibus bill (which could be best called the "No Pork Left Behind" bill), President Bush failed to veto it.

In their Contract with America in 1994, Republicans committed to "restoring fiscal responsibility to an out-of-control Congress, requiring them to live under the same budget constraints as families and businesses." Not only have they failed to achieve that goal, they have gone the opposite direction in recent years.

Moreover, these increases are poised to continue. The new budget numbers reveal a 7 percent military increase, which will be followed by another military supplemental in 2005; a 10 percent increase for homeland security; and 11 percent more for the FBI. In addition, after increasing education spending by 70 percent, President Bush has proposed an additional 3 percent increase for education. The National Endowment for the Arts, which has absolutely no legitimate reason to be funded by the federal government, will get a 15 percent increase. All of this comes on the heels of the administration's recent admission that the cost of its already costly new prescription drug program will be $140 billion more than originally claimed.

It's not surprising that the latest deficit figure is up another $214 billion to $521 billion. We can expect that supporters of the administration will soon be tripping over themselves to blame the deficit on the war and a slow economy — but profligate spending is to blame. While we should not obsess over the deficit, per se, we should read it for what it is: a glaring sign that this administration is doing a poor job with our money.

To make us feel better, the president announced that he will "cut" about 60 programs. But to cut 60 programs out of the 10,000 or more programs in existence is nothing to brag about. Besides, no one should expect him to fight for these cuts when the time comes. These cuts will be put in the budget to make the administration look responsible. But appropriators know by experience that most presidents won't fight for it.

When it comes to this Republican president and Congress, it has become almost impossible to tell the difference between the two parties.

OP-ED COLUMNIST

Sex, Lies and Bush on Tape

By NICHOLAS D. KRISTOF

Published: February 4, 2004
Using this week's White House budget methodology, I can project that if you just keep reading this column, your assets will increase by $28,581 and you will lose 12.42 pounds. And this column is projected to end after just one paragraph.
Well, so much for White House projections.
If we're serious about confronting threats to our way of life, we don't have to hunt them in the caves of eastern Afghanistan. We can find a serious threat in the West Wing of the White House as the Bush administration charts its fiscal policy.
President Bush's budget policies have mortgaged America, yet instead of repairing the damage, he is intensifying the harm by trying to make his tax cuts permanent. And this week he presented a budget that is so dazzlingly deceitful it does not even attempt to include the bills for our presence in Iraq.
Conservatives have traditionally been the conscience of America's checkbook (and, to their credit, many now are screaming). If Mr. Bush were a genuine conservative, he might cut taxes, but he would cut spending to match. If he were an honest liberal, he might increase spending, and taxes as well. Instead, the president is inviting us out for a wild night on the town and leaving us — and our children — with the bill.
I'm sorry if I sound screechy. But my first beat at this newspaper, in 1984, was covering the Latin American debt crisis. Later I lived in Japan as its economy went from a global juggernaut to a global laughingstock. After you've seen how quickly national leaders can bungle national economies, and how difficult it is to put Humpty Dumpty together again, you have less patience for high-risk intellectual dishonesty like Mr. Bush's fiscal policy.
Dishonesty is a strong word. But the new book about former Treasury Secretary Paul O'Neill discloses that Mr. Bush's 2001 speech to a joint session of Congress about his budget contained a falsehood — about paying off all possible American debt — even after Mr. O'Neill pointed it out.
"That night, Bush stood before the nation . . .," recounts the book, "The Price of Loyalty," "and said something that knowledgeable people in the U.S. government knew to be false." I've excerpted that speech at www.nytimes.com/kristofresponds (look for Posting No. 266), and it makes painful reading.
In the 2000 campaign, I covered Mr. Bush a bit, so this week I dug out tapes of his speeches. On those tapes, he claims that he will leave the great bulk of the surplus intact: "My plan is to take a portion of the projected surplus, a little over $1 trillion of the $4 trillion surplus, and give it to the people who pay the bills."
The reality is that under Mr. Bush, surpluses have completely vanished. Granted, he had help from a bad economy. But spending has increased more rapidly than under any president since Lyndon Johnson, and Mr. Bush refuses to pay for it. I've seen that story before — in Argentina.
Now the I.M.F. has warned that the U.S. budget and trade deficits are a threat to the global economy.
A new study from the Brookings Institution, "Restoring Fiscal Sanity," estimates that by 2014 the average family's income will be $1,800 lower because of slower economic growth caused by these budget deficits. A family with a 30-year $250,000 mortgage will be paying $2,000 more per year in interest costs alone.
All in all, as I look at the economy, I miss President Bill Clinton.
Mr. Clinton had egregious personal failings, and I deplored what I felt was his dishonesty. But as a steward of the economy, he combined fiscal conservatism with a willingness to stand against protectionism. No leader today, Democrat or Republican, is so forthright about the economy, and it's sad to see Democrats retreating from free trade.
Compared with Mr. Bush, John Kerry and most other Democratic presidential candidates are paragons of responsibility — but only compared with Mr. Bush. The reality is that promises by Democrats like Mr. Kerry to start new health care programs, keep some of the tax cuts and restore black ink are nonsense. But it's less nonsense to say 2 + 2 = 5 (Mr. Kerry) than to say 2 + 2 = 22 (Mr. Bush).
Mr. Clinton lied about sex, and he was sleazy in other respects as well, but he was willing to tell America the unpleasant truth about trade and about budgets. I wish Mr. Bush and his Democratic challengers would be half as honest with the American public as Mr. Clinton was.