The following editorial appeared in today's Washington Post:
In just one year, an astonishing $4 trillion of projected surpluses has vanished from the federal ledger, swallowed up by the president's (and Congress') tax-cut package, by spending increases and by the economic downturn. The Congressional Budget Office, which this time last year was forecasting $5.6 trillion in surpluses from 2002 to 2011, now envisions $1.6 trillion instead. For the next two years, CBO says, the federal budget will run in the red.
In the short term, the biggest factor in this reversal of fortune is the recession; the tax cuts play only a supporting role. The downturn accounts for $148 billion of the swing from a projected $313 billion surplus into a projected $21 billion deficit for fiscal 2002. The tax cut accounts for $38 billion of lost revenue in 2002, increases in defense spending eat up $33 billion. But for the long term, the tax cut plays a major role, accounting for 41 percent of the lost surplus over the decade through its direct cost and the share it generates of increased federal debt service costs, according to an analysis by the Center on Budget and Policy Priorities.
It's hardly necessary to say this after what's happened in the past year, but this week's CBO estimates, too, will change over time, and likely not for the better. That's because the budget office has, as required by law, based its projections on current law and current levels of spending adjusted for inflation. That means these projections don't include the increased defense spending that everyone knows is coming, or additional spending for homeland defense or the farm bill, and they assume some things that no one expects will happen, such as a variety of tax-cut provisions expiring, as scheduled in the law. This week President Bush asked for an additional $48 billion in defense spending, and his budgeteers trumped the CBO by predicting a deficit of $106 billion this year. Even if the economy rebounds as quickly and energetically as CBO predicts - and its forecast is pretty optimistic - these spending and revenue changes will eat away at future surpluses.
Last year, as the tax cut was debated, the administration said there was enough money for Congress to have its cake, eat it and sell it a couple of times too: You could cut taxes, that is, and still increase defense spending as needed, pay down the national debt and cover pensions and health care for the retiring baby-boom generation. By 2006, CBO estimated last year, the government would be on track to paying off just about the whole federal debt; that was one of the factors that led Federal Reserve Chairman Alan Greenspan to look favorably on the idea of the tax cuts. Now CBO says the debt won't be paid off in this decade. Meanwhile, shoring up Social Security and Medicare grows more difficult.
So far the administration's response to changing circumstances has been to cling tightly to its original position, proposing only to accelerate some tax cuts and attacking those who doubt their wisdom. But there was reason to question the affordability of those cuts in the first place, and there's even more now. Four trillion more, give or take.