What Could Bust Bush's Budget: Nearly Everything


By Howard Gleckman Here's a way to think about the federal budget recently submitted to Congress by President George Bush: as a four-piece puzzle, where every time one part moves, it throws the other three parts out of whack. The challenge for Dubya and the lawmakers is to find a way to get all the pieces to fit. Good luck.

The four elements are cutting taxes, paying down the federal debt, fixing Medicare and Social Security, and funding all of the other programs and services of government. A close look at the Bush budget shows how hard it's going to be for the President to win this game.

LIKE EMINEM. The centerpiece is Bush's $1.6 trillion, 10-year tax cut. A clue for all you gamesters: Bush has as much chance of keeping his tax-cut promises to $1.6 trillion as Eminem has of singing the national anthem at a Christian Coalition convention.

Just look at the first chunk of Bush's plan, drafted by the House Ways & Means Committee on Mar. 1. The measure, which includes just the rate cuts proposed by Bush, would cost $958 billion over 10 years. That's $230 billion more than Bush estimated during the campaign. It means he'll either have to increase the total tax-cut figure or squeeze everything else -- marriage-penalty relief, estate-tax repeal, a doubling of the child credit, and all the rest -- into the remaining $750 billion. Hint: If you're very rich, tell the kids not to count on that tax-free estate anytime soon. There may be some estate-tax relief for wealthy taxpayers this year, but the repeal isn't going to survive in its current form.

The next piece of the puzzle is paying down the $3.4 trillion national debt. Hang on to your hats for this one -- it's a little complicated. The expected Social Security surplus over the next 10 years is about $2.6 trillion. Democrats would use it all to help wipe out the debt. Plus, they'd put about $500 billion in Medicare surpluses toward paying off most of the rest. Devoting that dough to debt reduction, by the way, is just another way of saying the money would stay in that lockbox Al Gore was so fond of.

PRIVATE ACCOUNTS. Bush has a different idea. He would use only about $2 trillion of the Social Security surplus to buy government bonds. The remaining $600 billion would help pay for a new system of private Social Security accounts.

What about that $500 billion of extra Medicare money? Bush says it's an accounting fiction that really just belongs in the government's general fund. And he would put it in a new $842 billion reserve account. Likely uses are big increases in Pentagon spending, more tax cuts, or get this, Medicare reform.

The third piece of the puzzle is funding for the rest of government, excluding Social Security and Medicare. Bush wants to spend lots for defense but hold down overall spending. That means he'll have to cut other programs. Of course, he won't say which. This is, after all, a game.

Finally, there's Social Security reform. While it won't happen anytime soon, in a strange way it's the key to winning the budget contest. Here's why. In the campaign, Bush talked about fixing Social Security by allowing workers to shift some of their payroll tax into individual investment accounts. He never said how much, but aides often hinted at two percentage points of tax.

LAUNCH A RAID? Trouble is, if you reduce payroll taxes, you cut the money available to pay basic benefits. In the long run, backers say, investment returns from the accounts themselves will more than make up the difference. But that's a long-term proposition.

So, what do you do in the short run? Well, you could use that extra $600 billion of Social Security surplus that Bush doesn't want to go to pay down the debt. But $600 billion barely covers one percentage point of tax. That means Bush would either have to scale back his private accounts, cut benefits, or raid the general fund for the extra cash.

And that, of course, is where the game gets really interesting -- because there isn't any money left in the general fund. Bush could grab some of that $842 billion reserve, but that would just make the Medicare program look even more broke. Or maybe he could shift the Social Security fund to the Pentagon.... You soon start to realize he can't do what he has set out to, given the fiscal constraints of budgetary economics. Now, if only they could digitize the budget game and put it on a Playstation2. Gleckman is a a senior correspondent in BusinessWeek's Washington bureau. Follow his views twice a month in Washington Watch, only on BW Online


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