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2004 budget shortfalls { August 24 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/08/24/business/yourmoney/24VIEW.htmlhttp://www.nytimes.com/2003/08/24/business/yourmoney/24VIEW.html
August 24, 2003
ECONOMIC VIEW
For Budget Shortfalls, Choose Grim or Grimmer
By EDMUND L. ANDREWS
WASHINGTON
ON Tuesday, the Congressional Budget Office will unveil its latest prognosis for federal budget shortfalls over the next 10 years.
And while it is impossible to know what the nonpartisan agency will say, one thing is all but certain: no matter how bleak the forecast, the real outlook is worse.
The prospects for the current fiscal year are already clear. Last month, the White House predicted that the federal shortfall this year would nearly double, to a record $455 billion. Congressional analysts had a slightly lower estimate: $401 billion.
As Republicans often argue, the current deficits are high though not catastrophic. The shortfall this year will equal about 4.2 percent of gross domestic product, but that is proportionately lower than the deficits reached in the 1980's.
In addition, more than half of the deficit this year stems from the weak economy, which crippled tax receipts, and the war in Iraq. In a sense, both items amount to one-time costs and will disappear.
On this point, the Congressional Budget Office is almost certain to agree with the White House. Yes, the government's fiscal health declined sharply in the last six months, the Congressional analysts are likely to confirm. But its charts will almost certainly show budget deficits that will gradually retreat to tamer levels.
But that is not the whole story. A new assessment by Democrats on the House Budget Committee tries to introduce factors that the Congressional Budget Office is not allowed to include. Among them are these:
• A realistic allowance for the continued costs of occupying Iraq and Afghanistan. Those costs are running about $60 billion a year at present.
• An allowance for the cost of making permanent the scores of tax cuts passed this year and in 2001, as President Bush advocates. The estimated cost over 10 years would be $656 billion.
• An allowance for fixing the alternative minimum tax. It was originally intended to prevent the rich from aggressively avoiding taxes, but it is expected to force huge tax increases on nearly 40 million people over the next 10 years as inflation pushes up nominal incomes. Democrats and Republicans agree that they want to prevent that from happening, but doing so would cost at least $400 billion over 10 years.
• An allowance for a huge prescription drug program, now pending in Congress, to benefit the elderly. That would also cost $400 billion over 10 years.
The Democratic forecast assumes that economic growth will be strong, at more than 3 percent a year for the next decade. But it also predicts that tax revenue will fall short of administration projections by an additional $69 billion a year. That shortfall has nothing to do with the new tax cuts.
The Democrats argue that the administration's forecasts are unrealistic because they assume that individual and corporate tax receipts will return to the lofty levels at the height of the stock market bubble.
The administration's forecast assumes that individual and corporate taxes will soon equal about 10 percent of the total economy, as they did just before the bubble burst. But the average over many previous years was closer to 8 percent.
The Democrats' analysis predicts that discretionary spending will grow faster than the White House predicts. Military spending would continue to increase at well above the rate of inflation, as the administration suggests, while nonmilitary spending would continue to keep pace with inflation.
THE bottom line, according to the Democratic forecasters, is that deficits could exceed $400 billion a year for the rest of the decade. If one subtracts the surpluses in the Social Security and Medicare trust funds, which are theoretically being saved for the time when the baby boomers retire en masse, then the operating deficits will soar.
"When the policies that are likely to be passed are added in, and the Social Security surpluses are subtracted, we face a very alarming prospect," said Representative John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee. "That is deficits of over $500 billion a year for as far as the forecast goes."
To be sure, past budget forecasts proved wildly inaccurate, failing to anticipate the flood of revenues at the end of the stock market bubble or the startling plunge that followed its collapse. In addition, of course, Democrats are using the deficit as a cudgel to undermine any popularity Republicans can earn as crowd-pleasing tax-cutters.
But even if one greets any long-term budget forecast with enormous skepticism, it is hardly a stretch to say that the fiscal outlook is far more fragile than it may appear.
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