"Because the President's economic policies are working," says Budget Director Joshua B. Bolten, "We are ahead of pace to meet the goal of cutting the deficit in half within five years." Adds House Budget Committee Chairman Jim Nussle (R-Okla.): "Our budget outlook has significantly improved in the past seven months due to strong economic growth and spending restraint."
MISOVERESTIMATE. Say what? How does the idea of the deficit getting $70 billion bigger translate into fiscal success? It's easy, when you combine Washington's bizarre budget accounting rules, the increasingly superheated campaign season, and some Orwellian rhetoric. You see, last February, President Bush projected the deficit for this year would hit $521 billion. Now, thanks to a growing economy, the Bushies figure it will come in $76 billion below that number. Thus, we have a whole new way to game the budget debate: Overestimate deficits at the beginning of the year, come in below that forecast, and declare victory.
It's a pity that the real world isn't that rosy. Look more closely at the Bush numbers and you'll see that spending from '03 to '04 is up by a staggering $160 billion. Only $14 billion of that can be attributed to homeland security and Pentagon spending, including the war in Iraq. The rest is scattered throughout government, with much of it in programs such as Medicare, Medicaid, and Social Security.
The deficit would have been even bigger, except that a growing economy is boosting tax revenues across the board from last year. Individual income tax receipts are expected to be up by $23 billion, corporate taxes up by a whopping $50 billion -- thanks to higher profits -- and Social Security and Medicare payroll taxes up by $18 billion. Those Social Security taxes, of course, are not saved to pay retirement benefits. They are spent on the rest of government.
THE REAL NUMBERS. And what about Bush's promise to cut the deficit in half in five years? The new Bush budget claims he can do it even faster -- by 2007. But don't hold your breath. That happy prediction assumes the U.S. will spend no more money on Iraq and Afghanistan after Sept. 30. And it ignores the need to fix the dreaded alternative minimum tax (AMT). Without a fix, the levy will hit more than 30 million taxpayers by the end of the decade.
The reality is that protecting millions of middle-class taxpayers from the AMT would cost close to $50 billion a year over the next decade. Once Washington fixes the AMT and pays for the war in Iraq, you can add at least $100 billion a year to Bush's deficit estimates over the next five years. That means forgetting about all that cutting-the-deficit-in-half business.
If anyone pays attention to the real numbers, the fiscal situation is more bad news for Bush's reelection chances and good news for his newly minted Democratic challenger, John Kerry. The bad news for Kerry, of course, is that if gets elected, he'll actually have to do something about this mess. And while he at least can credibly claim he won't make matters much worse, he hasn't yet shown any inclination to make things better. Gleckman is senior correspondent in the Washington bureau of BusinessWeek