In a March 2004 analysis of the Bush Administration’s Fiscal Year 2005 budget, the Congressional Budget Office (CBO) finds that Bush’s plan to make permanent the tax cuts of 2001 and 2003 would adversely affect government revenue after 2009. This fact contradicts the Administration’s assertions that making the tax cuts permanent would help in the recovery now. It is a mystery as to how they can say that tax cuts that have most of their effect in five years will help the economy now. It can only be attributed to their less than devotion to truth. By 2009, the economy is likely to be back in a boom period. If this is the case, then tax cuts will be the last thing good for the economy. In a boom time, tax cuts will do little or nothing to help the economy and will do more to raise inflation.
In addition to the Bush Administration’s claims that these tax cut extensions will help the economy now, the Administration’s claim that domestic discretionary spending is the main cause of the deficits, as well as their claim that deficits are falling are dubious. In the first case, discretionary funding has been almost completely flat for the past two years (excluding defense and homeland security). Furthermore, the Administration and CBO’s projections suggest that between now and 2014 discretionary spending will fall from 7.8 percent of GDP today to 5.9 percent in 2014. On their second claim that deficits are going to fall, little or none of this fall has to do with the Administration’s policies. If one separates the on- and off-budget deficits and surpluses (off-budget surpluses mainly consist of social security), the picture is vastly different. The on-budget deficit as a percent of GDP falls between 2004 and 2014 from 5.6 percent to 3.2 percent, much less than the halving of the deficit George W. Bush promises over the next five years. And while the total deficit falls from 4.2 percent of GDP today to 1.6 percent in 2014, most of this fall is due to the average off-budget surplus of around 1.5 percent of GDP over the period.
Finally, one important spending priority of the Administration is left out of the budget forecast: spending on the occupation and rebuilding of Iraq and Afghanistan. This is (and probably will continue to be) a large funding obligation that will further inflate the deficit. George W. Bush’s only solution to the deficit is further tax cuts that will ‘pay for themselves’ as one member of the Administration hoped and to cut popular domestic programs that help Americans more than the war in Iraq will ever.
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©2004 Richard B. Goud, Jr.
Updated on 21 March 2004 at 16:39 PST