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Budget blues ahead

President Bush boasts that the federal deficit is likely to be less than forecast. Fine, but the Medicare and Social Security crises still loom.

President Bush is so hard up for good news he gave a routine budget update himself, a mundane chore usually handled by underlings. But he had something to crow about. This year's budget deficit is projected to be $296-billion, 30 percent less than an earlier White House estimate.

"That's what happens when you implement progrowth economic policies," Bush boasted, referring to more than $1-trillion in tax cuts. Never mind that the tax cuts were a major reason the budget went from surplus to deficit or that Bush was at the wheel when it plunged into the ditch.

Bush's announcement is the equivalent of taking $1-million to the craps table and losing $700,000, then bragging that you saved $300,000. In other words, the government is still running a multibillion-dollar deficit that threatens to accelerate a funding crisis in Medicare and Social Security - but it could have been worse.

Give Bush credit for this: Tax revenues did show healthy growth in the first nine months of the budget year. Most of the revenue came from taxes on corporate profits (up 26 percent) and on capital gains and bonuses of wealthy individuals (up 20 percent). Revenues from workers subject to withholding grew by a more modest 8 percent.

Those details allowed critics of Bush's trickle-down economics to make a distinction. "This all relates to the widening income disparities between high-income individuals and the rest of the population," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities.

So both sides can use the data to advance their causes in the fall elections. Still, it does appear that the administration purposefully exaggerated the earlier estimate of a $423-billion deficit so that any improvement would look like progress. And going forward, there is still reason for Americans to worry about the deficit's implications for the economy.

Growth has already slowed as rising interest rates and a slower housing market have taken their toll on consumer spending. Declining tax revenues may not be far behind, though Bush is unlikely to make that announcement himself.

Neither Bush nor Congress has the courage to attack the deficit head-on. Bush wants to make his tax cuts permanent, and Congress refuses to curb its spending. Meanwhile, the greatest budgetary challenge the nation has ever faced - paying for Medicare and Social Security for retiring baby boomers - is almost here.

"Even if somehow we balanced the budget by, say, 2010, we would look forward to an enormous fiscal problem," said Douglas Holtz-Eakin, a former Bush economist.

So let Bush have his day in the sun, but not much longer than that. The real battle is just around the corner.

[Last modified July 12, 2006, 06:00:47]