Red Handed

By

The latest in what has become a steady stream of bad budgetary news

arrived last Friday, when newspapers reported that this year's

deficit is estimated to be about $100 billion--twice as large as

previous forecasts had suggested. President George W. Bush

immediately offered a multilayered defense packed with jaw-droppingmendacity. First came denial. "Of course, it's all speculative to

begin with," he told reporters. "I don't know the models that they

guessed [sic], but it's guesswork thus far." (Actually, this year's

revenue forecast, which is based on tax returns that have already

come in, is fairly reliable. What's unreliable are the ten-year

budget forecasts, which Bush was only too happy to treat as money in

the bank while selling his tax cut last year.) Next Bush offered up

what has in recent months become his all-purpose escape clause: "I

want to remind you what I told the American people, that if I'm the

president--when I was campaigning, if I were to become the
president,

we would have deficits only in the case of war, a recession, or a

national emergency." Bush, somewhat morbidly, plays this line for

laughs in his speeches, chuckling, "Never did I realize we'd get the

trifecta." But this escape clause is not only a falsehood; it's

actually a revision of a previous falsehood, which itself was

consciously designed to cover up the fact that the budget is in far

worse shape than Bush lets on.

A little history is in order. Bush's original promise on the budget

was extremely clear: He would devote the entire Social Security

surplus to debt reduction. This meant more than merely balancing the

budget. Because Social Security takes in around $200 billion more

than it spends every year, Bush had effectively pledged not only
that

he wouldn't run overall deficits, but that he would substantially
pay

down the national debt every single year. Not only did Bush make no

exception for emergencies, but he specifically promised that even if

emergencies arose, they would not force him to break his pledge. On

February 27, 2001, in his first address before Congress, Bush
assured

that his budget would "prepare for the unexpected, for the

uncertainties of the future" by setting aside "a contingency fund
for

emergencies or additional spending needs" totaling "almost a
trillion

dollars." (In case you're wondering what happened to that
contingency

fund--we sure could use it right about now--the answer, as you might

have guessed, is that it never existed.)

It was only last summer--as it became obvious that the
administration

would have to dip into the Social Security surplus to pay its

bills--that Bush invented his escape clause. As TNR's Ryan Lizza

reported at the time (See "Raising Keynes," September 10, 2001), in

an August 20 speech Bush hinted that he could tap the Social
Security

surplus in case of recession or war. His economic adviser, Larry

Lindsay, said so explicitly the same week, and then Bush again

reiterated the "war or recession" exceptions days later. Soon
enough,

Bush's aides were claiming he had "always" made these

exceptions--though there is no evidence he had ever made them
before,

and the White House has been unable to cite an instance when he did.

Over subsequent weeks the imaginary escape clause continued to

mutate, with Bush throwing in the specific (false) detail that he
had

made the exception during the campaign and adding "national

emergency" to the list of exceptions he'd supposedly made.

(Apparently, the "trifecta" plays better comedically.)

In recent weeks Bush has rewritten his budgetary history yet again.

Now the president tells audiences he has always said that in a time

of recession, war, or national emergency, he could not only borrow

from Social Security's surplus but could run overall budget
deficits.

In other words, the administration now justifies not only dipping

into the Social Security surplus, but actually borrowing the whole

thing and still running red ink. Bush promises that deficits will be

"temporary"; budget forecasters project them to disappear by 2005.

But the official numbers leave out all sorts of costs, mainly new

spending and tax cuts favored by both parties. Richard Kogan, a

budget analyst at the Center on Budget and Policy Priorities,
figures

that a politically realistic accounting would show the budget
running

modest deficits (in the $25 billion to $50 billion range) for years

on end. If the economy performs better than expected, of course,
that

might not happen. Then again, if it performs worse, as it has

recently, deficits could grow even larger. Meanwhile, Bush's own

projections show him tapping the Social Security trust fund by at

least $100 billion every year for the foreseeable future. His

original promise to reserve the Social Security surplus has fallen

down the memory hole.

Setting aside the question of whether the president should

repeatedly lie without consequence--conservatives used to really
care

about this--does a little red ink really do any harm? Yes, it does.

We have only one decade left until the baby-boomers begin retiring.

Paying off the debt before then would spare future taxpayers having

to pay interest costs--which currently soak up almost $200 billion

per year--and thus make it easier for them to bear the burden of
more

expensive medical and retirement costs.

Reducing government debt also frees up capital for private

investment, lowering long-term interest rates and promoting growth.

Conservatives, seeking to justify the red ink produced by Bush's tax

cut, try to deny the connection between deficits and long-term

interest rates. "We have very little empirical evidence to suggest

much of a link between deficits and interest rates," claimed White

House economist Glenn Hubbard earlier this year. But Bush himself
has

endorsed the link when it suits him. "I'm mindful of what

overspending can mean to interest rates or expectations of interest

rates," he said last week. The game here is obvious--and obviously

dishonest. The administration stresses the harmful effects of

deficits when discussing spending but downplays those exact same

effects when the topic is taxes. (As a result, what Bushies actually

believe about deficits and interest rates remains anybody's guess.)

Perhaps most important, the commitment to setting aside the Social

Security surplus, while a clumsy mechanism for enforcing fiscal

discipline, had the benefit of curtailing the natural gluttonous

urges of both parties. Now that Bush has broken down all the
bulwarks

of fiscal responsibility, nothing prevents Congress from reverting
to

its natural wasteful ways. And so, it has. In recent months both

parties have eagerly endorsed a "stimulus bill"--several years'
worth

of pork for the business lobby designed to cure a slowdown that has

already ended--huge grants for already coddled farmers, an energy

bill with tens of billions in industry subsidies, and more. Both

parties in Congress, with the White House's consent, have waved
these

bills through as though they had limitless resources. The irony, of

course, is that the administration's argument for the tax cut was

that it was supposed to squeeze out wasteful spending. But when the

White House exercises no restraint on its own budget-busting

priorities, it's in no position to stop Congress from doing the
same.

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