The Magic Deficit Reduction

Has the loudly trumpeted good news about the deficit left you wondering just how it's possible that the Bush administration could have turned things around like that? Don't.

From the LA Times:

This will be the third year in a row that the administration put forth relatively gloomy deficit forecasts early on, only to announce months later that things had turned out better than expected. To some skeptics, it's beginning to look like an economic version of the old "expectations" game.

Even economists who hesitate to accuse the White House of playing games say the claims of good news on the budget are unfortunate because they make people unjustifiably sanguine about the government's current fiscal health.

And the focus on this year's budget will distract attention from the real budget crisis, which will begin in two years as the eldest of the baby boom generation become eligible for Social Security benefits.

"Our problem is our large long-term deficit, and the sooner we deal with that the better," said Comptroller General David M. Walker.

Walker, who is head of Congress' Government Accountability Office, warned of "a false sense of security. We're in much worse shape fiscally today than we were a few years ago."

To divert attention from that continuing reality, critics suggest, the administration has borrowed a gambit favored by political candidates, who commonly try to lower expectations about how they will fare to magnify the apparent size of their victory if they win.

In the case of the budget, they say, the administration has begun to low-ball its revenue estimates at the beginning of a budget cycle to set up good news a few months later.

The real question is why so many news sources have basically repeated the administration's spiel about how it's all because of tax cuts magically boosting the economy, without pointing out what's obvious to anyone who's been paying attention: it's Rovean bafflegab, to fuel Republican campaigns.

At the liberal Center on Budget and Policy Priorities, experts argue that not only will today's numbers look better than February's, but they will leave room for further improvement when the administration announces the actual totals for fiscal 2006 just before the November congressional elections.

"Even with these re-estimated revenues," said Robert Greenstein, the center's executive director, "there's something a little unreal about celebrating deficits of 'only' $300 billion, with the baby boom crunch just around the corner."

Contrary to the administration's rhetoric, Greenstein said, tax revenue has grown more slowly during this period of economic expansion than during previous expansions. Adjusted for inflation, he said, government revenue this year will probably fall short of the level it reached six years earlier. And as a share of the U.S. economy, revenue will be about 10% short of its 2000 level.

Analysts at the center said revenue in 2006 would remain about $200 billion short of the level the White House and Congressional Budget Office projected in 2001, before the tax cuts.