Monday :: Jan 26, 2004

CBO's Estimate of the Bush Fiscal Train Wreck - Greenspan About To Yell "Fire"

by Steve

The Congressional Budget Office put out its latest estimate on Bush’s coming fiscal train wreck this morning, and if you wanted any more proof from a nonpartisan source of the gross negligence of this administration in handling fiscal matters, this is it.

Federal deficits will total nearly $2.4 trillion over the next decade, the Congressional Budget Office projected Monday, a worsening of nearly $1 trillion since it’s last forecast in August.

In its annual wintertime economic update, Congress' nonpartisan fiscal analyst also projected that the red ink would hit a record $477 billion this year.

With the release of the CBO numbers today, Bush has already lost credibility in the media over the budget and deficit claims he makes.

Like a cowboy-boot wearing David Blaine, President Bush has promised to perform an amazing feat of prestidigitation: he's going to saw the whopping federal budget deficit in half in just five short years.

But some observers warn the budget proposal he will submit Feb. 2, which will include projections of a greatly reduced deficit by 2009, will be little more than smoke and mirrors -- unless he and Congress can show a lot more fiscal discipline than they have recently.

In his State of the Union speech last week and in other public appearances, President Bush and members of his administration have promised to cut that deficit in half by 2009. Though Bush has pledged to keep spending in check, he hasn't offered specifics for cutting the deficit, and -- according to some analysts -- what plans he has proposed seem more likely to grow the deficit.

"With all these new programs, the administration's contention that the deficit will be cut in half in the next five years is a tall tale, derived in large part by omitting very likely or inevitable costs, including costs for proposals the administration itself hopes and intends to support," Keith Ashdown, spokesman for Taxpayers for Common Sense, a Washington watchdog group, wrote recently.

Ashdown told CNN/Money that, while the Mars proposal could very well be killed -- a "sacrificial lamb" to appease fiscal conservatives -- the president's budget will also not include the impact of a transportation bill that could cost as much as $375 billion and could be passed this year.

Ashdown and others also noted that Bush's budget will not include any more spending for the war in Iraq and the continuing U.S. involvement in Afghanistan. Instead, Bush is likely to delay asking for that money until after the election. Some analysts have estimated such costs will be about $50 billion or more a year.

The budget also will not include the effect of reforming the alternative minimum tax (AMT) to cut the number of people it affects, which the CBO has estimated will add $172 billion to the deficit through 2009. Such a reform is likely to be passed, according to many analysts.

The Center on Budget and Policy Priorities and the Brookings Institution have already trashed the White House over the State of the Union and the deficit recently, pointing out the same concerns.

Meanwhile, the liberal Center on Budget and Policy Priorities, a Washington think tank, warns Bush may not include increased spending for a future Pentagon build-up and anti-terrorism efforts, noting he excluded such costs from his last budget proposal.

"The administration's forthcoming budget is expected to have approximately $200 billion in missing costs in the fifth year," CBPP analysts Richard Kogan and Martha Coven wrote recently. "Once these missing costs are taken into account, the deficit is seen as being in the range of $500 billion in 2009, or around 3.5 percent of GDP. That is not close to cutting the deficit in half."

But now two new sources of problems for Bush are emerging: fellow Republicans who are concerned about the deficits, and someone whose concerns may about to be dropped into the middle of the election campaign next month with an unknown degree of lethality.

Federal Reserve Chairman Alan Greenspan is set to deliver a tough speech on the federal budget deficit, according to a report Monday. Greenspan is expected to say that deficits are in fact important to the nation's economic health and may offer ways to curb spending, Fortune magazine reports in issues due to hit newsstands on Feb. 2.

The central bank chairman could deliver the speech next month when he gives his semi-annual testimony on monetary policy to Congress, Fortune said, adding that sources have told the magazine that when Greenspan talks privately about the deficit, he calls it "awful" and "quite frankly dangerous."

Anyone who reads Paul O’Neill’s book understands that both Greenspan and O’Neill thought the Bush tax cuts were reckless and that deficits were the major problem facing the country at the end of this decade. O’Neill was quite clear in his book that Bush was made fully aware of the deficits resulting from his first and second tax cuts in the fall of 2002. But, according to O’Neill, after Rove and Larry Lindsey made the ideological argument that Bush had to go ahead anyway, Bush did.

But Greenspan is about to make things very sticky for Bush. Yes, again from reading the O’Neill book it is clear that Greenspan shares the blame here because he didn’t take a forceful stand with Bush early on the deficits and went along with the tax cuts. So his cries now about the deficits and need to deal with them through spending cuts are not really credible, coming from a man who is yelling “fire” while still holding one of the matches.

Yet anything from Greenspan criticizing deficits and calling for spending restraint calls into question Bush’s entire fiscal mismanagement and deceits. It will force the GOP to spell out how they plan to do it all with spending cuts alone before the election rather than wait until after November to do the cuts and add the Iraq and Pentagon increases. And it will allow the Democrats to push for the rollback of the top-end tax cuts as a way to address Greenspan’s concerns.

Steve :: 1:04 PM :: Comments (6) :: Digg It!