ell, whaddya know. Even as the Republican
leadership strong-armed the Medicare drug bill through Congress, the
administration was sitting on estimates showing that the plan would
cost at least $134 billion more than it let on. But let's not make
too much of the incident. After all, it's not as if our leaders make
a habit of faking their budget projections. Oh, wait.
The budget released yesterday, which projects a $521 billion
deficit for fiscal 2004, is no more credible than its predecessors.
When the administration promises much lower deficits in future
years, remember this: two years ago it projected a fiscal 2004
deficit of only $14 billion. What's new this time is that the
administration has decided to pay lip service to conservative
complaints about runaway spending.
Over the past few months, many pundits have obediently placed the
onus for rising deficits on "a vast increase in discretionary
domestic spending," or words to that effect. By the way, the
Heritage Foundation, which has orchestrated this campaign, is cagier
than those pundits; it covers itself by relying on innuendo, never
saying outright that domestic discretionary spending is the source
of the deficit.
To mollify these critics, the new budget purports to shrink real
domestic discretionary spending. This won't happen; even if it did,
it would have a negligible impact on the deficit. But it isn't just
a fake solution it's a response to a fake problem.
The prime cause of giant budget deficits is a plunge in the
federal government's tax take, which fell from 20.9 percent of
G.D.P. in fiscal 2000 to a projected 15.7 percent this year, the
lowest share since 1950. About 45 percent of this plunge can be
attributed to the Bush tax cuts. The rest reflects the end of the
stock market bubble, the still-depressed economy and probably
growing tax sheltering and evasion.
It's true that increased spending also contributes to the
deficit, and that there has been a substantial increase in
discretionary spending spending that, unlike such items as Social
Security payments, isn't automatically determined by formulas. But
the bulk of this increase has been related to national security.
Traditional budget measures distinguish between defense and
nondefense discretionary spending. Even by these measures, defense
accounts for most of the increase in recent years. But a better
measure would group homeland security and other costs associated
with 9/11 with defense, not domestic programs. The Center for
American Progress confirming related work by the Center on Budget
and Policy Priorities estimates that from 2000 to 2004
security-related discretionary spending rose to 4.7 percent of
G.D.P. from 3.4 percent, while nonsecurity spending rose to only 3.4
percent from 3.1 percent.
In other words, the role of nonsecurity spending in the plunge
into deficit is trivial, compared with tax cuts and security
spending. (Credit where credit is due: the administration's budget
numbers show the same thing.) And even severe austerity on
nonsecurity spending won't make a significant dent in the
So what will it take to get the budget deficit under control?
Unless Social Security and Medicare are drastically cut which is,
of course, what the right wants any solution has to include a
major increase in revenue.
Many Democrats have called for a partial rollback of the Bush tax
cuts, preserving the "middle class" cuts those that convey at
least some benefit to the 77 percent of taxpayers in the 15 percent
tax bracket or below. Such a partial rollback would have reduced
this year's budget deficit by about $180 billion; that would help,
but one hopes politicians realize that it's not enough.
Another major source of revenue could be a crackdown on tax
loopholes and tax evasion, which has reached epidemic proportions.
In particular, what's going on with the tax on corporate profits?
That source of revenue is down, as a percent of G.D.P., to 1930's
levels. No, that's not a misprint. And receipts are not growing
nearly as fast as one would expect, given an economic recovery that
has bypassed workers but given big gains to their employers. An
administration that actually tried to make corporations pay their
taxes might be able to find $100 billion or more each year.
An eventual budget solution will involve all this, and more. But
the first step is to stop looking for villains in all the wrong