THE ALMOST uncontrollable smirk plastered on President Bush's face as he stood before a Republican audience last week was roughly akin to that of a man who has been wasting his money on the lottery for years and has finally gotten his hands on a winning ticket. That feeling of "I told you so" permeated the room as Bush triumphantly announced that the federal budget deficit, predicted five months earlier by the White House to balloon to $423 billion this year, had actually shrunk to $296 billion. The cause was higher than expected tax revenues due to a stronger economy, and Bush immediately gave all the credit to his tax cuts. ''Some in Washington say we had to choose between cutting taxes and cutting the deficit," he crowed. ''Today's numbers show that that was a false choice."
However, the value of this news and Bush's claim of responsibility for it are both rather dubious. The discrepancy between the White House's forecast and the actual deficit has led more than a few politicians and commentators to accuse the administration of bloating its predictions in order to reduce expectations. But regardless of the validity of that charge, the fact remains that a deficit of almost $300 billion is nothing to brag about, especially considering that when Bush took office in 2001 the White House was projecting a budget surplus of nearly $305 billion..
Furthermore, there are serious questions as to whether this momentary surge in tax revenue is really a sign that the nation is on its way to erasing the deficit, as Bush insists. The surge in tax revenues was centered in the two types of taxes that make up the majority of the federal government's intake: corporate taxes and higher bracket income taxes. The growth in corporate tax receipts, 26 percent so far this year, reflects strong profits for business. Income taxes from higher earners, whose taxes aren't withheld from paychecks, pay about 85 percent of the total income tax collected, according to the Congressional Budget Office. Their share has grown at an equally astounding 20 percent. Many of these top earners are business executives and CEOs, and their success also depends on the market.
All of this means that total tax revenue is much more sensitive to stock market volatility than it ever has been before, and thus expecting such a good take every year, as Bush seems to do, isn't realistic. "One cannot reasonably expect corporate income taxes to grow at double-digit rates forever," commented Douglas Holtz-Eakin, a former director of the Congressional Budget Office. With regards to the income taxes, he remarked, "It would be prudent to assume that this might not be permanent either."
Bush's tax cuts may have contributed to the stronger profits and earnings among the rich by increasing their incentives to work, as conservatives like to argue, but the market's upswing is just as easily attributed to sheer economic luck. In any event, Bush is missing the larger fiscal picture. Revenue is fairly strong, but that it makes little difference because the administration's spending is completely out of control. Veronique de Rugy, a budget analyst at the conservative American Enterprise Institute, observed, "There is no fiscal discipline at all going on. It's utterly shocking for me to hear an administration that claims to be conservative focus exclusively on the deficit, because the deficit is a pretty meaningless measure of the size of government." Added Holtz-Eakin, "This is tiny compared to the big problem, and it's on the wrong side of the budget. The big problem is on the spending side."
Expenses from Iraq and Afghanistan are topping $300 billion, and they're not even fully included in Bush's budget estimates. Meanwhile, domestic spending, whether it be for Hurricane Katrina relief ($123 billion), the President's Medicare reforms ($724 billion this decade alone) or a slew of other programs, is rising at a pace that's making even liberals gag.
The government continues to borrow against the Social Security surplus to mask the true size of the deficit despite the fact that in five years baby boomers will begin to retire, sending federal entitlement payments through the roof. Thanks to Bush's spending, the situation will be far more intractable than it should have been, especially in light of the hefty budget surplus he received from his predecessor.
Bush may have been desperate for something to celebrate, but the fact that this is the best news he can offer shouldn't be much of a comfort to anyone else.
A.J. Kornblith is a Cavalier Daily Opinion columnist. He can be reached at akornblith@cavalierdaily.com.
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