- The Washington Times - Thursday, May 5, 2005

With a full complement of smoke and mirrors distorting spending, revenues and the deficit, the Republican Congress recently passed its 2006 budget resolution.

Admittedly, the 2006 budget does project a modicum of spending restraint in some areas, such as domestic discretionary spending. But health-care entitlement spending — in particular, the Medicaid program, which President Bush’s budget slightly targeted — will proceed full-speed ahead. Moreover, the resolution’s celebrated achievement — chopping the federal budget deficit in half between 2004 ($521 billion) and 2008 ($254 billion) — is accomplished only by using gimmicks and other subterfuge.

Regarding the touted achievement on the deficit, consider the standard against which the prospective reduction is measured. Before being resurrected from its well-deserved obscurity and then highlighted in budget documents by both Congress and the White House, the $521 billion figure made its first and only fiscal appearance as a high-ball estimate of the 2004 budget deficit. That projection appeared in the administration’s fiscal 2005 budget, which was released more than four months into the 2004 fiscal year.

The actual 2004 budget deficit was $412 billion, which was still a nominal record. Far more stunning than the size of the 2004 deficit was the fact that 100 percent of it was effectively financed by foreign residents and governments. Indeed, foreign holdings of U.S. federal debt increased by $430 billion last year after rising by more than $250 billion in 2003, a development that apparently has not concerned the Treasury Department.

Now, to get from the fictitious $521 billion to $254 billion four years later, the 2006 budget resolution, which covers five years, provides for no supplemental appropriations to finance military operations in Iraq and Afghanistan after the fiscal year beginning Oct. 1. On the revenue side, which envisions $106 billion in tax cuts over the five-year period, there appears to be little room to address the Alternative Minimum Tax (AMT) monster beyond 2006. The Congressional Budget Office (CBO) has estimated that addressing the burgeoning AMT problem could cost $600 billion over 10 years. Beyond ignoring Iraq/Afghanistan and the AMT after 2006, the five-year blueprint achieves its 2008 deficit goal by spending Social Security’s nearly $100 billion cash-flow surplus that year. The resolution also pretends that $125 billion in interest payments — which will be made by Treasury to the Social Security trust funds in 2008 for previous borrowings — actually represents interest income to the government. Much closer to reality, the budget resolution reports that the “on-budget” 2008 deficit (i.e., the deficit excluding Social Security) will actually total more than $480 billion, which is barely $100 billion less than the 2004 “on-budget” deficit.

For domestic discretionary spending — the portion of the budget that remains after excluding the military, international affairs, mandatory entitlement programs and interest payments — the budget resolution does envision admirable spending restraint and discipline. Both traits, however, have been utterly inconsistent with the spending splurge that has occurred since 2001. The liberal Center on Budget Policy and Priorities (CBPP) compared the budget resolution to CBO’s baseline projections, which assume that domestic discretionary spending would increase by inflation after 2005. According to CBPP’s analysis, 2006-2010 outlays for domestic discretionary programs would be $143 billion less than CBO’s baseline totals. However, that restraint, according to a May 3 analysis by the libertarian Cato Institute, would follow a four-year period (2002-2005) during which nondefense discretionary outlays increased by 36 percent. Put us in the we’ll-believe-it-when-we-see-it category.

Regarding entitlement spending, look no further than Medicaid, where federal outlays increased by nearly 800 percent between 1984 ($20 billion) and 2004 ($176 billion). According to CBO’s baseline, Medicaid spending was projected to total $1.11 trillion from 2006 through 2010, reaching $260 billion in 2010. President Bush’s budget sought to slightly reduce Medicaid’s explosive growth rate. Yet, this proved to be too much for the Republican Congress, whose resolution reduced Medicaid’s five-year projected spending ($1.11 trillion) by an imperceptible $10 billion.

On the plus side, the resolution has set the stage for the United States to finally begin exploiting the vast oil resources in the Arctic National Wildlife Refuge (ANWR) in Alaska. But even this commendable achievement must be put in perspective. ANWR oil output, according to government models, could reach 1 million barrels per day by 2025. But even this necessary, worthwhile achievement would represent no more than 12 percent of the projected increase in petroleum imports between 2003 and 2025. Indeed, in its 2005 Annual Energy Outlook, the Department of Energy forecasts that U.S. net petroleum imports will rise from 11 million barrels per day in 2003 to 19 million by 2025.

Under these circumstances, we remain, if not underwhelmed, at least whelmed.



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