To paraphrase the oily Captain Renault of Casablanca fame, we in Washington are shocked, shocked to find that deficits are going on here. To listen to the cries of outrage and dismay, one might think the Bush Administration’s latest projection of nearly $400 billion in red ink for the fiscal year ending on Sept. 30, and almost $500 billion for next year was unexpected.
After all, if we happily run significant budget shortfalls when the economy is flush, why should we surprised that they grow when it is soft?
The Bush math is very simple, really. Based on the White House projections, from the time the President came into office in 2001 until he leaves in fiscal 2009, Medicare spending will nearly double from $214 billion to $417 billion, fueled in large part by his new Part D drug benefit. Military spending will more than double. Officially, OMB says defense costs will rise from the ’01 level of $334 billion to $675 billion, but that assumes only $70 billion for the wars in Iraq and Afghanistan in 2009—far below the real price, which is likely to hit $200 billion.
While this big ticket spending explodes, income tax receipts will be less than one-third higher, or about $500 billion more, in ’09 than in ’01. And medium-term revenues are likely to be lower than projected since Bush assumes no fix for the Alternative Minimum Tax after 2009, an item which will cost more than $70 billion. Ironically, while John McCain and Barack Obama want us to assume a budget baseline where the costs of the war and an AMT patch go on forever, Bush does not.
As Budget Director Jim Nussle said yesterday, in a bit of uncharacteristic understatement, “This is going to be a challenge.”
Indeed. Especially if, like Obama and McCain, you hope to govern the country after Bush moseys on back to Texas. Yet, while the budget hole deepens in front of their eyes, the candidates keep making implausible promises.
McCain insists he’d balance the budget by 2013 but proposes a tax plan that would increase the national debt by $5 trillion over the next decade, even as he offers no credible way to slash spending by close to that much.
Obama economic adviser Austan Goolsbee told TPC last week that the campaign is aiming for a deficit no larger than this year’s $400 billion by 2013. Yet even meeting that low bar won’t be easy in the face of his tax plan, which would increase the debt by $3.4 trillion by 2018, and his ambitious new spending plans for health care, the environment, and education, which would add billions more.
Bush’s new budget estimates are a reality check on both candidates. They tell us that there is no way McCain can cut taxes by as much as he promises and there is no way that Obama will cut taxes and boost spending by as much as he wants.
That is, I suppose, comforting in some inside the Beltway way.
