- The Washington Times - Monday, February 5, 2007

President Bush unveiled his fiscal 2008 budget yesterday, and, as advertised, it forecast a budget surplus in 2012. That’s the easy part, especially considering the devices used to get the federal budget back in the black more than five years from now. To get there, as former Defense Secretary Don Rumsfeld might say, it will be “a long, hard slog.” Since Mr. Bush has less than two years remaining in office, others will have to do the heavy lifting.

In fiscal 2008, which begins Oct. 1, the president proposes to spend $2.9 trillion and collect $2.66 trillion in taxes. The difference would produce a $240 billion unified budget deficit, which is not much different from the $248 billion deficit recorded in 2006 and the $244 billion deficit projected for 2007. Annual budget deficits would then fall rapidly, reaching $187 billion in 2009, $94 billion in 2010 and $54 billion in 2011. The U.S. situation would finally achieve a unified budget surplus of $61 billion in 2012.

To get there, the annual change in nominal federal spending would have to decelerate sharply. Under Mr. Bush, these total federal outlays increased by 7.9 percent (2002), 7.4 percent (2003), 6.2 percent (2004), 7.8 percent (2005) and 7.4 percent (2006). Mr. Bush’s 2008 budget assumes that total nominal federal outlays will only rise by 4.9 percent (2007), 4.2 percent (2008), 2.9 percent (2009), 2.1 percent (2010), 3.6 percent (2011) and 2.8 percent (2012). On the other hand, given that total tax revenues increased by 14.6 percent in 2005 and 11.8 percent in 2006, the administration cannot be accused of proposing a rosy revenue scenario. From 2007 through 2012, revenues are projected to rise an average of 5.4 percent per year. Nor does the 2008 budget blueprint forecast an inordinately rosy scenario for economic growth, which is projected to average an inflation-adjusted 3 percent per year from 2007 through 2012. However, it is worth pointing out that if such a projection were realized, the American economy will have experienced its longest economic expansion since at least 1854. It is also worth pointing out that if a recession should intervene during the next six years — a highly plausible scenario — then the administration’s latest deficit projections would prove to be far too optimistic in the extreme.

In a welcome change from the past, when the White House either declined to project costs for its global war on terror in its annual budget (2003- 06) or proposed a relatively meaningless number ($50 billion for 2007) as a “placeholder,” the administration has clearly made a good-faith effort to offer a reasonable estimate for the cost of military operations in Iraq and Afghanistan for 2008. Accompanying the 2008 budget are two supplemental appropriations for the war on terror. There is a $93.4 billion supplemental for the balance of fiscal 2007. That will be added to the $70 billion that Congress has already appropriated for a 2007. The second supplemental is for 2008 and totals $141.7 billion. Regrettably, the administration reverts to past practice for 2009, for which it projects only $50 billion in war funds. Thereafter, it projects nothing for global war on terror. Department of Defense outlays, which totaled $499 billion in 2006, are projected to rise to $549 billion in 2007 and $583 billion in 2008.

For non-security discretionary outlays, the 2008 budget actually projects declining nominal totals from 2007 ($458 billion) through 2012 ($435 billion). Adjusting the 2012 total for the 12.7 percent in cumulative inflation (consumer price index) that the administration projects between 2007 and 2012 reduces the $435 figure to $386 billion (measured in 2007 dollars).That represents an inflation-adjusted decrease of 16 percent in non-security discretionary outlays. Nothing close to that is likely to happen.

For Medicare and Medicaid/SCHIP (SCHIP is a health program for children), the administration’s 2007 budget called for five-year savings of $35.9 billion and $1.5 billion, respectively. (Ten-year savings totaled $105 billion and $5 billion.) This year, the five-year savings are $66 billion (Medicare) and $6.7 billion (Medicaid/SCHIP). The 10-year savings are $252.4 billion (Medicare) and $18.3 billion (Medicaid/SCHIP). Last year, the Republican-controlled Congress was so traumatized by the thought of enacting such relatively minor savings for Medicare and Medicaid/SCHIP that it not only failed to pass a budget resolution; the Republican-led Congress also failed to pass nearly all appropriations bills. What are the chances that a Democratic-led Congress will approve much larger savings in these programs?

The administration has rightly called for earmark reform and a presidential line-item veto. But these important reforms are dwarfed by the administration’s failure to offer a long-term solution to the alternative minimum tax, which will increasingly afflict the middle class. While calling for a permanent extension of the 2001 and 2003 tax cuts, the 2008 budget blueprint pretends that the AMT will effectively confiscate from middle- and upper-middle class families hundreds of billions of dollars (nearly $100 billion in 2012 alone) in tax relief that has supposedly been permanently extended. That, too, will never happen. So, there goes the $61 billion surplus for 2012.



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