A mid-session budget review

The Bush administration recently released its mid-session budget review, which updated estimates for fiscal 2007 and the 2008-12 period. The White House is doing cartwheels because the projected budget deficit for fiscal 2007, which ends Sept. 30, declined to $205 billion. That’s $43 billion less than the 2006 budget deficit ($248 billion) and $39 billion less than the 2007 deficit of $244 billion forecast in February. Yes, but it is $441 billion more than the $236 billion surplus in fiscal 2000, the last fiscal year before some of President Bush’s policies started to become effective. While the estimate of the 2007 deficit declined compared to February’s projections, the cumulative budget balance during the 2008-2012 period deteriorated by $137 billion since February. Moreover, relying on a slew of truly herculean assumptions, the mid-session review also projects a budget surplus ($31 billion) by 2012.

But what’s to brag about? A $205 billion deficit in fiscal 2007 after the administration turned a $236 billion 2000 surplus into a $413 billion deficit (fiscal 2004)? In fact, the last five budgets enacted by the previous administration generated a cumulative surplus of $537 billion. The first five budgets for which the Bush administration was completely responsible (2002-2006) generated cumulative budget deficits of $1.515 trillion. In other words, between the two five-year periods, there was a fiscal reversal of more than $2 trillion. So, a $205 billion budget deficit in fiscal 2007, which essentially corresponds with the sixth year of an expansion, is something worth cheering? No.

In a one-page fact sheet that accompanied the mid-session review, the administration highlighted this fact: “On an inflation-adjusted basis, the economy is now more than 16 percent larger than in 2001.” Just like its $205 billion deficit in 2007, the size of the Bush expansion (16.4 percent after 5.25 years) is nothing to brag about. There have been nine previous recessions and recoveries since World War II. Including the year each expansion began, here are the increases in real GDP 5.25 years (21 quarters) following the quarter when each recession reached its trough: 1950, 33 percent; 1954, 20 percent; 1958, 27.6 percent; 1961, 35.8 percent; 1971, 19.6 percent; 1975, 20.7 percent; 1980, 20.4 percent; 1983, 27.9 percent; 1991, 17.9 percent. Note well: The economic growth (16.4 percent) achieved during the 21 quarters of the Bush expansion is the lowest level of growth achieved by any of the 10 postwar expansions during the 21 quarters following their troughs. Also worth noting is that economic growth during 1990s expansion increased an additional 18.6 percent (an annualized rate of 4.4 percent) during the four years that followed its first 21 quarters. Anybody expect economic growth in the current expansion to accelerate by more than 50 percent to 4.4 percent during the next four years? Not the Bush administration, which is projecting growth to average less than 3 percent during the next four years, just as it averaged less than 3 percent throughout the first 21 quarters of the Bush expansion.

Among the herculean assumptions that will lead us to the promised land of a budget surplus in 2012 are these. On page 20 of the mid-session review, the administration reveals that after spending $174 billion on its Global War on Terror in 2007 and a projected $145.2 in 2008, it budgets a puny $50 billion in 2009 and zero for 2010 through 2012. Measured in constant 2007 dollars deflated by consumer price inflation projected by the administration, non-security discretionary outlays (see pages 10, 32 and do the math) will decline from $460 billion in 2007 to $389 billion in 2012 ($437 billion, measured in 2012 dollars). The administration has not set aside a dime (see page 33) for preventing the alternative minimum tax (AMT) from attacking tens of millions of middle- and upper-middle class families on income earned from 2008 through 2012.

The Congressional Budget Office has calculated that indexing the AMT for inflation, coupled with the interactive effect of extending the 2001 and 2003 tax cuts and AMT indexation, would cost $402 billion (2008-12) and an additional $864 billion (2013-17). Here’s our favorite: While the administration surely deserves credit for proposing to begin the painful process of Medicare reform, its mid-session review (page 32) projects spending less money on Medicare in 2012 ($486 billion) than will be spent in 2011 ($487 billion). Note: The first wave of baby boomers becomes eligible for Medicare in 2011. The fact that Medicare spending is projected to decline during the year the budget is projected to return to a $31 billion surplus confirms how utterly disingenuous the blueprint is.