A Disastrous 2008 Budget

Isaiah J. Poole

February 05, 2007

President Bush’s proposed budget for fiscal year 2008 reveals once again his disregard for what a majority of the American people asked for in the 2006 elections and his pathological inability to level with the public about the public policy choices the administration and Congress must make together.

The budget proposes $2.9 trillion in spending—that amounts to almost $8 billion a day and a total increase of about $200 billion over this year. While spending for the military and homeland security will grow dramatically, the percentage of funding for domestic priorities will shrink, growing just 1 percent over 2007. Funding for those programs would likely have to grow more than 3 percent to keep pace with the rate of inflation over the past year.

Here’s how Congressional Quarterly is summarizing the budget:

The president’s budget assumes a $244 billion deficit in fiscal 2007, down from $248 billion in fiscal 2006. The red ink is projected to diminish each year before turning into a $61 billion surplus in fiscal 2012.

The budget proposal includes an ambitious attempt to slow spending on entitlement programs, with Medicare a particular target. The president’s proposal slices a net $95.9 billion from entitlement spending over the next five years, and $309 billion over 10 years. Medicare savings alone account for $66 billion over five years and $252.4 billion over a decade.

The cuts, however, are dwarfed by the cost of extending Bush’s tax cuts, most of which are set to expire in 2010. Extending the 2001 and 2003 tax cuts will cost $373.9 billion over five years and $1.6 trillion over a decade. Additional tax cuts and extensions, including a one-year “patch” to blunt the effects of the alternative minimum tax (AMT), would cost $225 billion over five years and $237.3 billion over a decade.

The budget is bad in the short term and especially bad in the long term. In the short term, House Budget Committee Chairman Rep. John Spratt, D-S.C., said Monday, “the President calls for nearly $2 trillion in tax cuts, so in the name of balancing the budget by 2012, he hits domestic priorities such as health care, education, and the environment.”

For example, funding for implementing the No Child Left Behind law would end up being $15 billion below what it would be if the administration had followed Congress’ intent when it passed the law, according to Spratt.

The Center for Budget and Policy Priorities says in an analysis posted Monday that the Bush budget will worsen levels of income inequality that even President Bush has recently been unable to dismiss. "People with incomes of more than $1 million would get tax cuts averaging $160,000 a year (in 2012 dollars) in perpetuity," the Center said. Meanwhile, more children in lower-income families would be forced out of the State Children’s Health Insurance Program, low-income elderly people struggling to pay high winter heating bills would face sharp cuts in the aid they receive through the low-income home energy assistance program, the number of children in low-income families who receive child care assistance would be cut by 300,000 between 2006 and 2010, and the number of children in Head Start would be reduced because of a $100 million funding cut below the 2007 level in the House-passed continuing resolution.

In the long term, the administration does not offer a realistic solution to what is almost universally recognized as a pending catastrophic economic train wreck. In fact, by claiming that the federal budget will move from deep red to black by 2012 if Congress adopts the president’s plan, the administration obfuscates serious problems.

In his statement Monday, Senate Budget Committee Chairman Kent Conrad, D-N.D., said that while “the President is trying to wrap himself in the mantle of fiscal rectitude,” his budget leaves out such items as the full long-term costs of the war in Iraq and the cost of changing the alternative minimum tax so that middle-income taxpayers are not unintentionally forced to pay it. Spratt adds that in reviving his Social Security privatization plan, the Bush administration is adding an item that will cost $637 billion between the years 2012 and 2017.

The Washington Post noted that, according to the nonpartisan Congressional Budget Office, meeting the administration’s demand that its tax cuts be extended, rather than allowing them to expire this year, would mean a $146 billion deficit in 2012, not a modest budget surplus as the administration projects. That would be lower than the current deficit of about $248 billion, but the red ink would continue—and would then get worse as health costs skyrocket and the baby-boom generation retires.

The budget is being released on the heels of a chilling report by the Center on Budget and Policy Priorities that outlines just how much of an economic mess the Bush administration has created and the importance of bold policy changes, such as an overhaul of our health care system.

That report, released last week, concluded that “the nation’s budget policies are unsustainable.“

Our projections show that if current budget policies are continued (e.g., if current laws governing Medicare, Social Security, and other programs remain unchanged, the 2001 and 2003 tax cuts are made permanent, and relief from the Alternative Minimum Tax is continued), deficits will reach about 20 percent of the Gross Domestic Product by 2050, and the national debt will climb to 231 percent of GDP by that year, or more than twice the size of the U.S. economy.  Debt-to-GDP ratios in this range are unprecedented in the United States, even during major wars.

Further,

The main sources of rising expenditures are rising costs throughout the U.S. health care system and demographic changes, with health care costs playing the larger role.  Together, these two forces will cause the “big three” domestic programs—Medicare, Social Security, and Medicaid—to grow considerably faster than the economy.  Collectively, these three programs are projected to grow by slightly more than 13 percent of GDP between now and 2050.  All other programs, including all domestic programs other than the “big three,” are projected to grow more slowly than the economy in coming decades and consequently do not contribute to the projected rise in deficits and debt.  Of particular note, entitlement programs outside of the “big three” are projected to grow more slowly than the economy.  Common pronouncements that the nation’s fiscal problems result from a general “entitlement crisis” are thus mistaken.

Critical to avoiding economic disaster, the center says, are “substantial, system-wide health-care reforms.” But the administration’s signature gambit is to squeeze $70 billion in savings from Medicare over the next five years by forcing some recipients to pay higher premiums and some health-care providers to accept lower payments. That was appearing to be a non-starter even before the administration officially unveiled the proposal.

It is true that the White House’s annual release of the budget—for the fiscal year beginning October 1—is hardly worth the forest-full of paper it is printed on, since Congress is the ultimate “decider” when it comes to spending. But it is both a statement of the administration’s priorities and principles as well as a road map for where the most heated political battles will likely take place in the coming weeks. The budget will be where the Democrats can prove that they are going to do what conservative Republicans failed to do and create a government and an economy that works for everyone, not just Republican campaign contributors. The Democrats have a lot of work to do to right this ship that the administration has built.