It is likely the deficit will shrink this year to around $333 billion, which is roughly 2.7 percent of GDP. But that’s because the White House - and all other estimators of revenue inside and outside of government - underestimated how much money the federal government was going to collect in taxes this year. Improving U.S. economic conditions will likely lead to further upward revisions in the revenue prediction. In other words, a faulty estimate at the beginning of the year set them up for a good news day this week. No surprise there - revenue estimation is and always will be an inexact science, rife with error.
What is more notable is the political spin that accompanied it. The White House tried to suggest that its “responsible budget restraint” was also partly a cause of the smaller deficit. But the new numbers don’t change the fact that George W. Bush is the still biggest-spending president since Lyndon Johnson, even after adjusting for inflation.
The revised numbers show the White House’s “spending restraint” allowed a 7.9 percent rise in federal spending in fiscal 2005. They also predict that the budget for 2006 will grow by 5.7 percent, over twice as fast as the White House expects inflation to grow. With restraint like that, who needs big spenders?
The president’s team also claims the improved budget scenario furthers their goal of cutting the deficit in half over the next five years. While this claim does rest on fairly conservative estimates of how fast the economy will grow, it also relies on highly unrealistic assumptions of where spending will go in the future.
For starters, the White House assumes government spending grow will grow only 4.4 percent a year for the next four years. But Bush has presided over average growth of 7.3 percent since taking office. In fact, the new budget estimates assume that non-entitlement spending will be cut by $36 billion between 2006 and 2009. Yet there has never been a period over the past 40 years in which such spending has dropped more than $12.2 billion. And the White House’s standard is an impossible one to meet if Bush doesn’t dust off his veto pen or encourage Congress to halt the spending spree that lawmakers seem more than happy to continue.
The budget negotiations for this year aren’t even over yet. Congress has yet to send a single budget bill to the president, and was adding billions in spending beyond what Bush had requested even before the new numbers came out. Now Congress knows it has a bigger pot of money to play with. In other words, the unexpected flow of revenue rushing into federal coffers means the pressure to restrain spending just shrank. Congress is not very likely to say “No” to all the lobbyists and fellow congressmen who will be fighting for their piece of the action now that there’s more action to be had.
A rising tide does lift all boats. Unfortunately, it lengthens the wish list of big spenders, too.