My pal Mickey Kaus complains that my last column didn’t persuade him to be worried about George W. Bush’s fiscal irresponsibility. Let me give it one more shot.
In 1996, Bill Clinton made lots of people in his party furious when he agreed to submit to Congress a budget that would reach balance in seven years. As things turned out, the budget cuts Clinton proposed, combined with the miracle economy of the ‘90s, brought the budget into balance in something more like two years. And the Clinton White House, unlike the Bush White House, made a habit of using reasonable assumptions and honest numbers. Could a budget that went to balance in two years rather than seven go from balance to imbalance over the next seven years–under a far less fiscally responsible administration? You bet it could.
Obviously, I agree that the federal government’s fiscal position is much healthier now than it was in 1993. That puts us in a much better position if Bush screws things up. But that’s no reason for complacency about signs that he is screwing them up. I’m not arguing that the Bush tax cut is certain to consume the entire surplus, including the off-budget Social Security surplus. But I have no confidence that, in combination with inevitable spending increases and a weaker-than-expected economy, it won’t. That’s why it would have been far more prudent to at least include some kind of “trigger” that conditioned further installments of Bush’s tax cut on those predicted budget surpluses actually materializing.
Kaus asks for numbers. Ok, here are some. The Congressional Budget Office projects $3.4 trillion in cumulative surpluses over the next 10 years (down from $5.6 trillion in its previous estimate, thanks to the tax cut, the slowing economy, and a few other odds and ends). The most plausible estimate I’ve seen of pending expenditures not included in Bush’s budget proposal comes from the Center on Budget and Policy Priorities, a liberal group, but one with a reputation for numerical realism on par with the CBO. A CBPP study says we can reasonably expect additional spending to eat up between $1.1 and $1.9 trillion of the surplus. The low end of that range is pretty conservative, including, for instance, no increases in defense spending. (Kaus says Bush isn’t a big spender. It’s true that in his first budget, Bush deferred keeping various budget increases he supports. But I’d like to see at least one more budget before I grant him that compliment.)
Take the high end of the range ($1.9 trillion) and bingo, that $5.6 trillion surplus is already down to $1.5 trillion. I don’t have a model that tells you what real GDP growth below 3.2 percent a year will do to that number. But just the CBO’s most recent adjustment in the growth rate for this year and next year reduced its 10-year surplus forecast by nearly $300 billion. And I fear that we may have just entered a period of regular downward revisions, mirroring the period of upward revisions we were so recently enjoying.
Is comparing this erosion in the surplus to the “structural” Reagan deficits unfair? It’s true that in the 1980s, the budget deficit was usually figured as the total deficit, without taking Social Security out of the equation. But back then, the trust fund surpluses were far less of a factor, subsidizing general expenditures by only tens of billions a year. By the middle of the current decade, the annual Social Security surplus is supposed to rise to around $250 billion a year. Look at the fiscal situation without that massive subsidy, and we may indeed return to a “structural deficit” akin to what Reagan created. Dip into the Social Security surpluses slightly, and most everybody agrees that there’s no problem. Dip into it deeply, and we’ll be in a far weaker position to deal with the baby boomers’ retirement. Use it all up, and we’re toast. The advantage of a Maginot Line-type defense like the Clinton-Gore “lockbox” is that the issue never arises.
Kaus says that if my concerns materialize and we do eat up the surplus, we can just raise taxes. In the past, this has proved somewhat easier said than done. Walter Mondale got demolished in 1984 for suggesting that a tax increase was necessary to cope with the Reagan deficits. George H.W. Bush became a traitor to his people for accepting an insufficient one. Bill Clinton lost control of Congress in 1994 in part because of his support for his 1993 tax increase. It may be possible to raise taxes again if we have to someday, but why go through that ordeal–which always seems to punish fiscally responsible behavior–if we don’t have to?
