Now that the Democrats have taken control of the United States Congress, President George W. Bush has decided it’s time for fiscal discipline and a balanced budget. That’s shameless, even by local standards. Who does Bush think was in power when the big deficits of the last six years were created? A good way for the Democrats to start the new congressional season is to examine just how it happened that the federal government moved from budget surplus to deficit during the Bush presidency. If Democrats can be clear about what went wrong, then maybe (maybe) they can begin to fix it. An honest budget discussion should start with an admission that the projected budget surpluses of the post-Clinton years were largely illusory – in the sense that they were predicated on overly upbeat assumptions about the economy. That’s not to diminish the importance of what Clinton and the Democrats did during the 1990s to impose some fiscal discipline. But it was unrealistic to assume that the boom years would continue indefinitely–piling up ever-greater budget surpluses. The Congressional Budget Office examined the mirage of endless surpluses in a report last year. The CBO studied the gap between the surpluses that were projected back in January 2001, and the actual deficits that occurred. Profligate tax and spending decisions were part of the story.
But the biggest factor was that revenues didn’t match the projections that had been made by Washington’s favorite economist, Dr. Rosy Scenario. In 2002, the shortfall of revenue for economic reasons was $308 billion; in 2003, it was $381 billion; in 2004, it was $307 billion. But Rosy Scenario wasn’t the only villain in the budget mess. Decisions by the Bush administration and the Republican Congress made a bad situation much worse–by enacting tax and spending programs that shredded any semblance of fiscal responsibility. The Bush tax cuts enacted in 2001 started the process. By CBO estimates, they reduced government revenue from projected levels by $31 billion in 2002, $84 billion in 2003, $100 billion in 2004, $100 billion in 2005 and $126 billion in 2006.
Republicans argue that those tax cuts were ‘pro-growth,’ and were justified by economic weakness after Sept. 11, 2001. I disagree with that economic analysis, but even if it were right, it doesn’t justify the spending binge that accompanied the tax cuts. The year Bush really busted the budget was 2003, when he embarked on a very costly war in Iraq that wasn’t funded by a tax increase. Worse, he added a major new welfare program, the prescription drug benefit, which also wasn’t funded. The inevitable result was a spending bubble. CBO numbers show that discretionary spending (which is largely military-related) jumped over projected levels by $120 billion in 2003, $171 billion in 2004, $221 billion in 2005 and $245 billion in 2006. As for the prescription drug benefit, its bite is only now being felt, with the CBO forecasting that it will add $27 billion to projected Medicare spending in 2006 and $40 billion in 2007. “The lesson of 2003 is that fighting a war, cutting taxes and funding a major new entitlement program all at the same time doesn’t work, says Robert Bixby, the executive director of the Concord Coalition, a bipartisan group that favors balanced budgets. He provided me with the CBO numbers used in this analysis. After the budget-busting policies of Bush’s first six years, the vexing question for the Democrats is whether to clean up the mess by moving the budget back toward balance. President Bush said this week he has a plan to balance the budget by 2012, but since he simultaneously rejected any tax increases and isn’t likely to reduce war spending, it’s hard to imagine how that plan could work. The Democrats have to decide whether on economics, they want to be (forgive the sexist term) the ‘Daddy Party’ of fiscal responsibility. Unless politicians find the courage to trim entitlement spending to what the country can afford, the projections are genuinely scary.
A 2006 study by the Government Accountability Office projects that if current fiscal policy continues, interest costs on the national debt will rise to 20 percent of GDP by 2045 and overall government spending to nearly 50 percent. That’s a recipe for an economic crack-up. The Democrats face the essential political decision as they take their seats: Do they want to make people happy by postponing tough decisions, or do they want to get serious about restoring fiscal sanity?
Are they the party of good times, or good governance? The Bush administration has argued for six years that you can have it both ways, but that’s demonstrably not true. So the Democratic moment arrives.
Syndicated columnist David Ignatius is published regularly by THE DAILY STAR
