Prometheus 6

Bush's Impossible Math

January 29, 2004

The unreal quality of the Bush administration's economic program reached new heights last week. "I believe deficits do matter," Vice President Dick Cheney declared at a summit meeting of skeptical world leaders in Davos, Switzerland, "but I'm also a great believer in the policy we followed." As the Congressional Budget Office reported this week, whether that policy of permanent tax cuts is followed or not will largely determine the size of the deficit.

The CBO says the deficit is headed for a record $477 billion this year. Over the next 10 years, if the cuts become permanent, it projects a deficit of more than $5 trillion. That indebtedness would reduce annual household income by about $1,800 a year because of slowed growth. Such debt is costly to maintain, just like a chronic maximum balance on a credit card.

The Federal Reserve on Wednesday held to its record-low current interest rates but warned that the 1% level can't last. The market tumbled. Pressure is mounting to raise interest rates to attract foreign investment to finance the federal debt. If — actually when — the average mortgage interest rate goes up from 6% to 7%, a family taking out a 30-year mortgage for $250,000 will owe another $2,000 a year to the lender.

President Bush claims he can tame the deficit by limiting growth in spending, excluding homeland security and defense, even while making tax cuts permanent. Considering the uncounted costs of war in Iraq and the pork-laden domestic spending spree that Congress has been on, including the pharmaceutical company bonanza of the Medicare drug benefit, there is no form of math that can do what Bush predicts.

As a new study by the center-left Brookings Institution shows, it will require more than reining in, for example, agriculture subsidies to begin rebalancing the budget. The study by former White House budget director Alice M. Rivlin and Brookings fellow Isabel V. Sawhill, among others, makes the obvious point that tax cuts for the top income brackets will have to be rolled back, not made permanent. Pain will also have to fall on the middle class, in speeding up higher age requirements for Social Security and higher Medicare premiums. Then come the poor, with a restructuring of Medicaid that would scale back the federal share of payments to the states.

Federal revenue is drying up because of the tax cuts already in effect. Individual and corporate income taxes are expected to equal 8% of the economy this year — the lowest level since 1942. If the tax cuts are made permanent, the 1% of families with the highest incomes would receive $159 billion in breaks in 2014 alone. Congressional Republicans and Democrats can still bring the budget under control, as they did during the early 1990s. But the conclusion of the Brookings study, that the economy cannot be saved painlessly, should be what taxpayers and voters recognize as the truth.

The National Taxpayers Union Foundation has systematically examined the fiscal policy implications of the contenders' agendas, using our BillTally budget software and relying on third-party sources (such as the Congressional Budget Office) to assign a cost to every proposal they've offered. We found that each candidate (including Dick Gephardt, who dropped out of the race after we released the study) calls for spending increases which would substantially swell the deficit--on average, an additional $479.23 billion beyond the present projection, which is effectively a 21.5% increase in federal spending.

Each of the Democrats has at one time called for full or partial repeal of the Bush tax cut, as if this were a panacea for federal budgetary woes and a license to introduce new proposals. Even by the most generous estimates, the projected federal revenue reduction in 2004 as a result of the 2003 tax cuts is $135 billion--yet, the thriftiest of the Democratic platforms calls for $170 billion in new spending. Howard Dean has labeled himself a "fiscal conservative," but his policies--including complete repeal of the Bush tax cuts--would increase the federal deficit by $88 billion in just the first year.