Editorial: Fiscal fancies/Good news is temporary

08/17/2005

Star Tribune
August 17, 2005

Thank goodness for geeks. Every six months a team of nonpartisan numbers nerds at the Congressional Budget Office (CBO) takes stock of government spending and federal revenues, then issues a report on the nation’s fiscal health. It’s a sobering ritual that can bring the political class back from fantasy to reality, and the report that the CBO issued on Monday was no exception.

Washington’s current fiscal fancy runs something like this: The federal deficit has fallen sharply since last year, and the government is now on a steady glide path toward a balanced budget. Huge tax cuts in 2001 and 2003 triggered a burst of economic growth, which caused a spurt of new tax revenues, and the best thing Washington could do is to extend the pro-growth formula. The view was summed up nicely by House Budget Committee Chairman Jim Nussle, R-Iowa, in Tuesday’s Washington Post: “We’re clearly on the right track. The strong economy, higher revenues and falling deficit projections are all the results of the successful leadership of the Congress and the president.”

Except that’s not what the CBO said. It said this: The federal deficit has fallen sharply, from $412 billion last year to an estimated $331 billion this year. But that’s a one-time improvement. Deficits will stay above $300 billion for the next five years and will start rising again if Congress grants the president’s request to extend tax cuts that expire in 2011.

The economy grew briskly last year, but it has since decelerated and the CBO has actually downgraded, not upgraded, its forecast for future growth. Meanwhile, the federal debt will rise steadily, both in dollar terms and as a share of the nation’s economy. (The CBO’s forecast assumes that spending on Iraq and Afghanistan will remain at current levels, which overstates the size of future deficits; but it also includes a set of tax assumptions that understate projected deficits by an almost comparable amount.)

It’s no mystery why Republicans would put such a positive spin on what is at best a sobering report. When lawmakers return from their August recess, one of the central congressional battles will be an effort to extend the 2001 and 2003 tax cuts, whose various provisions begin expiring in the next few years. But the CBO says that would add another $1.3 trillion to federal borrowing over the coming decade, which amounts to cutting taxes today by raising the debt on taxpayers tomorrow.

It would be nice if tax cuts really did produce balanced budgets. But it didn’t happen in the 1960s under President John F. Kennedy; it didn’t happen in the 1980s under President Ronald Reagan; and it’s not happening now under the budgets proposed by President Bush. This is not pleasant news for taxpayers or politicians, but perhaps that’s why it takes geeks to deliver it.