In this election year, the country deserves a realistic budget, and President Bush's proposed budget for fiscal 2009 isn't it — even though it predicts a deficit of $407 billion.
In this election year, the country deserves a realistic budget, and President Bush's proposed budget for fiscal 2009 isn't it — even though it predicts a deficit of $407 billion.The budget document released last week is just plain dishonest. Let us count the ways.
First, revenue is almost certainly overstated, because the budget projects real economic growth of 2.7% in 2008 and 3% in 2009. Those numbers totally ignore the economic slowdown that is likely to curb growth in gross domestic product to less than 1% in the last half of fiscal 2008 and into fiscal 2009.
The slowdown and the $152 billion economic stimulus package, which will decrease tax receipts, will almost certainly raise the fiscal-2008 budget deficit from the projected $410 billion.
The tax cuts will crimp federal revenue at least into the first months of fiscal 2009, and if they don't power the economy out of the slowdown quickly, revenue will lag even further.
As a result, the deficit in fiscal 2009 is likely to be significantly greater than the $407 billion projected in Mr. Bush's budget.
There are other revenue assumptions in the budget that are unrealistic. For example, the budget assumes that Congress will allow the alternative minimum tax to remain unchanged, hitting more than 23 million additional taxpayers next year and bringing in billions of additional revenue.
This is unlikely.
If Congress passed a permanent fix to the AMT without offsetting tax increases, the cost to the Department of the Treasury would be $1.3 trillion over the next 10 years. Just another one-year fix would add billions of dollars to the projected budget deficit.
Most likely, a Democratic Congress will pass an AMT reform that is at least partly funded by tax increases on high-income earners, but the revenue will be less than the Bush budget projects.
There are even more unrealistic assumptions on the spending side.
First, the proposed budget projects cuts in Medicare spending of $12.2 billion in fiscal 2009. Cuts of that magnitude are unlikely to pass Congress.
The budget also projects cuts for the following governmental departments: Transportation (25.7%), Justice (10.7%), Labor (10.5%), Agriculture (20.8%) and Interior (3.7%). None of the cuts are likely to pass Congress.
In addition, the budget proposes large increases in spending for the following governmental departments: Commerce (18.4%), State (16.5%), Veterans Affairs (13.5%), Homeland Security (7.7%) and Defense (7.5%).
Except for the defense boost, Congress is unlikely to reduce any of these spending hikes enough to offset likely increases in areas that Mr. Bush has proposed cutting.
In addition, the administration has included just $70 billion for spending on the wars in Afghanistan and Iraq; the true costs are likely to be more than double that figure. A more realistic figure for the likely fiscal-2009 deficit will be in excess of $550 billion.
A more realistic budget, even if the news on the deficit is bad, might trigger a serious debate about national priorities and realistic ways to achieve them.
For example, if the federal government needs additional revenue, how can it be raised without doing long-term damage to the economy?
What is a realistic budget for Medicare, and how do we pay for it?
How much does the country need for defense? What are the true costs for the wars in Iraq and Afghanistan?
Instead, a budget based on unrealistic assumptions is declared "dead on arrival" and bogs down the debate in a lengthy discussion on the validity of the overall assumptions.
It leaves all taxpayers without even a hint as to the effect of the budget on their financial well-being.
Consequently, none of us can plan for the future. This may be one of the invisible drags on economic activity.
