- The Washington Times - Sunday, February 12, 2006

The 2007 budget released Feb. 6 by President Bush was the sixth fiscal blueprint of his administration. Policy-makers understandably focus their attention on the budget’s projections for fiscal 2007, which begins Oct. 1, and beyond. After all, nothing can be done to change the past, and much effort will be expended to influence the future.

Nevertheless, in contrast to the unavoidable nature of its estimates of the future, the 2007 budget also contains information that accurately chronicles the past. To appreciate how tentative the future is, it is a worthwhile exercise to assess how recent fiscal events actually transpired, compared with how they were initially projected.

In April 2001, when the administration was less than 3 months old, Mr. Bush released his first budget, previewing fiscal 2002. The 2007 document contains the final figures through fiscal 2005, which concluded Sept. 30. Released five months before September 11, the 2002 budget was also unveiled precisely two years before the statue of Saddam Hussein was toppled in downtown Baghdad. It was also issued in the midst of a recession that had not yet been officially identified. Even after making allowances for these important caveats, the extent to which fiscal reality differed from the 2002 fiscal blueprint is remarkable.

The 2002 budget, which included the president’s 10-year, $1.6 trillion tax-relief proposal, projected cumulative 2002-05 budget surpluses totaling $1 trillion. The reality was a cumulative four-year deficit totaling $1.27 trillion. The difference is $2.27 trillion, or nearly $600 billion per year. Only a small portion of that $2.27 trillion difference (less than $400 billion over four years) relates to increased national-defense spending relative to what was projected in the 2002 budget. Cumulative additional spending for homeland security (non-Department of Defense) over the four years hit an estimated $55 billion.

The 2002 budget projected outlays of $2.17 trillion in 2005, but the federal government actually spent more than $2.47 trillion. The 2002 budget projected revenues of $2.44 trillion in 2005, but receipts actually totaled $2.15 trillion that year. Thus, both spending and tax revenues were each off by about $300 billion. That arithmetic explains why a projected 2005 budget surplus of $269 billion turned into an actual deficit of $318 billion. Interestingly, the 2002 budget forecast a 2006 surplus of $305 billion, while the 2007 budget projects a 2006 deficit of $423 billion, reflecting a potential one-year swing of nearly three-quarters of a trillion dollars.

The 2002 budget projected that the gross federal debt, which includes the bonds in the trust funds for Social Security, Medicare and federal employees retirement, would total $5.86 trillion at the end of fiscal 2005. In fact, the gross federal debt, which is the broadest measure of the “national debt,” was $7.91 trillion at the end of fiscal 2005. The portion of the gross federal debt held by the public stood at $3.32 trillion at the end of fiscal 2001, having fallen by more than $400 billion since 1996. The publicly held debt was projected to continue to decline, reaching $2.22 trillion by the end of fiscal 2005. In fact, it increased to $4.59 trillion, which was nearly $2.4 trillion above the 2002 projection. Over the past four fiscal years (2002-05), the publicly held debt increased by $1.27 trillion, reflecting the cumulative unified budget deficits over that period. Over the past four years, foreign investors purchased nearly 85 percent (or $1.06 trillion) of the $1.27 trillion increase in the publicly held debt. Needless to say, because the 2002 budget projected surpluses, it did not forecast America’s growing dependence on foreign investors to finance the budget deficits.

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