Fuzzy math

July 13, 2006, 8:12PM
From the Houston Chronicle
Slight decrease in the projected federal budget deficit offers little cause for celebration.

Copyright 2006 Houston Chronicle

SUPPOSE a physician infected 100 patients with malaria and subsequently cured seven of them. The healthy patients might be a testament to the doctor's restorative powers, but the entire exercise would not be edifying or praiseworthy.

A similar logic applies to claims about the wisdom to be seen in federal tax and spending decisions.

The federal budget deficit for fiscal 2005 was $318 billion. The White House projects that the deficit for 2006 will be $296 billion. Given the unrestrained spending that has characterized this Congress, Americans must be grateful the deficit is projected to be no higher. However, $296 billion, the fourth-highest deficit recorded in U.S. history, provides little cause to break open the champagne (or freedom wine, according to taste).

To its credit, the Republican Party's conservative base has begun to express outrage at Washington's irresponsible spending policies. Terrified of losing their base, President Bush and Republican leaders in Congress have seized upon the deficit figures as proof that they represent the party of fiscal responsibility. The lower deficit projection, Bush and House Majority Leader John Boehner say, results from tax cuts enacted in 2001 and 2003.

Voters, aware that the 2007 deficit is due to rise again to $318 billion, can decide how much credence to give that claim when they go to the polls in November. Whatever the case, the reduced budget figure for 2006 deserves to be seen in context.

In 2001, before the terrorist attacks of 9/11, the federal budget was in surplus. After the 2001 tax cuts and economic shock from 9/11, tax revenues declined in 2002-2003. Only in 2006 have tax revenues, adjusted for inflation and population growth, climbed higher than they were in 2000.

The truth is that when the United States' huge economy is healthy, tax revenues rise whether tax rates are raised, lowered or kept the same. Revenues rose when Ronald Reagan won tax cuts, and they rose when Bill Clinton secured tax hikes.

Tax cuts do spur economic activity and can help to lift the economy out of recession. But the administration's own Treasury Department analysis finds that tax cuts account for less than half of 1 percent of the economy's 3 percent-4 percent annual growth.

If tax cuts are spurring an economic boom, why is the federal budget still running a huge deficit after four years of solid economic expansion? The budget ought to be in surplus.

Furthermore, the budget figures do not take into account the hundreds of billions of dollars the nation will spend fighting in Iraq and Afghanistan. Following long custom, the administration has budgeted not a single dollar to pay for future combat operations, even in the middle of a global struggle against determined enemies.

As both Republicans and Democrats acknowledge, this year's $294 billion deficit estimate should be $180 billion higher to reflect the spending of every penny of the annual Social Security surplus the government collects from U.S. workers. That money should be used to buy down the national debt to prepare for the wave of baby boomer retirements, not squandered on bridges to nowhere and other so-called budget earmarks.

Democrats in Congress have their own large spending ambitions, but they have no hand in crafting the budget and are not even given a chance to read appropriations bills before a vote is taken.

In the last five years, federal spending has added $3 trillion to the national debt. Placed against that backdrop, a $12 billion drop in the federal deficit deserves no more than a polite nod of recognition.