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FEBRUARY 18, 2002

Hide and Sneak

As he went about crafting last year's budget, President Bush had a
problem. He wanted a big tax cut more than anything else, but polls
showed the public was more interested in social spending. So Bush
set out to obscure the trade-off between these objectives. His
method? Hide his priorities behind the supposedly huge budget
surplus. "We have increased our budget at a responsible four
percent, we have funded our priorities, we have paid down all the
available debt, we have prepared for contingencies--and we still
have money left over," he announced in his 2001 budget speech to
Congress.As he goes about promoting this year's budget, released on Monday,
Bush still has the same problem: He remains wedded to tax cuts uber
alles, and, while his personal ratings remain stratospheric, poll
after poll shows (by a wide margin) that the public would rather
scale back the tax cut than run a deficit. And, since the surplus
has evaporated, he can no longer hide behind the fiction of
limitless resources. Fortunately for him, he has two new
concealments: a war and a Democratic Congress. This year's plan is
to hide behind both.

The administration's use of the war was nicely exemplified in a
recent Washington Post op-ed by Budget Director Mitchell Daniels.
Under the headline "A WARTIME BUDGET," Daniels began by comparing
September 11 to Pearl Harbor. Just as Franklin Roosevelt slashed
domestic spending, he argued, Bush also has to restrain domestic
spending to boost defense. "Consequently," he concluded, "the
president has directed that all other activities of government must
be constrained." The historical analogy is absurd. From 1940 to
1945, defense spending grew from 1.7 percent of the economy to 37.5
percent. Bush, by contrast, proposes raising it over his first five
years from 3 percent of the gross domestic product to ... 3.3
percent. September 11 may feel like Pearl Harbor, but as a fiscal
event it doesn't approach World War II or even the cold war. FDR,
moreover, instituted a huge tax hike, especially on the rich, to
pay for the increase. Can't we at least give the rich a smaller tax
cut than promised? Nope. Daniels's op-ed doesn't mention taxes at
all.

Bush and his staffers speak as if tax revenues and defense spending
were somehow not fungible. Instead, the administration will only
discuss trade-offs between defense, domestic spending, and
deficits--never taxes. When they discuss spending cuts or deficits,
they take care to associate them with the war. Last month, for
instance, the administration announced its defense increase the
same day the Congressional Budget Office (CBO) released projections
of budget deficits for the next several years. The White House
almost certainly intended the coincidence. Many newspapers,
including The New York Times, combined the deficit news and the
Pentagon budget hike in a single article. The effect was to
juxtapose the two stories, suggesting that deficits are the result
of the defense increase--and therefore necessary.

Naturally, the president and his staffers play up the size of the
defense hike. In his budget message, Bush calls homeland security
his "first priority" and boasts of "the biggest increase in defense
spending in twenty years." In contrast, they play down the cost of
the tax cuts. As Daniels told reporters, "tax relief is a very,
very small factor in this budget." Listening to them, you'd never
know that last year's tax cut costs more than twice as much this
year's defense and homeland security increases over the next decade.
Nor would you suspect that the additional tax cuts Bush proposes
this year exceed his homeland security and defense increases
combined, both this year and in years to come.

In his State of the Union speech, Bush conceded that "our budget
will run a deficit that will be small and short-term so long as
Congress restrains spending and acts in a fiscally responsible
manner." If deficits go beyond the next few years, in other words,
it's not his fault.

It's true that Bush's budget forecasts just a small deficit next
year. So why not just cut a little more and avoid the embarrassment
of deficits altogether? Because the president doesn't intend to
make the spending cuts in his budget stick. We've seen this before.
Last year Bush announced he would allow federal spending to rise at
4 percent, and he made a show of slashing wasteful subsidies. But
he put little effort into it, and in the end Congress restored most
of his cuts--ending up with a 7 percent hike, even before September
11. This year the White House is again pretending to cut pork, but
it has again signaled its lack of seriousness. Daniels joked to the
press that his anti-spending crusade belongs on a list of "Mitch's
Greatest Flops." Another administration official told the Post, "We
have to watch how we use our capital. People in Congress are very
interested in water projects."

Most conservatives accept this calculation. Heritage Foundation
economist and offshore-tax-haven lobbyist Daniel Mitchell (yes,
Bush supporters include both a Mitchell Daniels and a Daniel
Mitchell) told the Times he expects no anti-spending crusade. "The
reason for that politically," observed Mitchell, "is that the Bush
administration has decided, probably for pretty good reasons, that
there are other priorities right now, and getting into a fight with
Congress that would not be easy to win would undermine those
priorities." The operating principle within the conservative
movement is that maximum political capital must be devoted to
cutting taxes--and if that means not antagonizing Congress over
spending, so be it. Besides, Bush is implicitly counting on
Congress to restore his unpopular cuts, such as freezing Head Start
or cutting low-income heating assistance. This gives the president
the best of both worlds: His image as a compassionate conservative
remains intact, but he can blame Congress for the fiscal
consequences.

Does it really matter if the budget runs a small deficit this year,
with the economy in recession? Of course not. The problem is the
next ten years. And here, as the Center on Budget and Policy
Priorities notes, the administration lards its budget with fanciful
assumptions. It lowballs various spending programs--for instance,
it says Medicare will cost some $300 billion less than the CBO
predicts--and pretends popular tax credits will suddenly expire.
Take away these and other accounting gimmicks, and Bush's long-term
budget scenario gets about $1 trillion worse.

This means that, unless the economy consistently surpasses
expectations, the government will find itself laden with debt as
the baby-boom generation retires. Conservatives downplay the
dangers of debt, but remember, even Bush's own Social Security
commission admits it can't fix the system without a huge infusion
of general revenues. If the budget runs deficits, of course, those
revenues will be hard to come by, forcing either crippling debt or
larger cuts in retirement programs than either party can stand. And
if that eventually comes to pass, Bush will have another handy way
to avoid owning up to his priorities: He'll no longer hold office.

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