Though little acknowledged, Aug. 14 the International Monetary Fund released a report, the Title IV Consultation with the United States, that disputed the White House's budget projections. It came to extremely different conclusions on how much the tax cut will cost the nation annually and what the U.S. surplus projections should be.
This occurred amidst speculation that the Congressional Budget Office's latest projections would drastically reduce the non-Social Security surplus or even show that the government was already set to cut into the Social Security trust fund.
Then the administration finagled itself to the head of the line as the CBO decided to delay its projections for a week. That allowed the Office of Management and Budget to release its revised projections Aug. 22 in practically an information vacuum created by the disregard for the IMF's report.
Even though the administration's figures are overly optimistic, they are still not all that cheery. The projection for fiscal year 2001, which ends at the end of September, has been scaled down to $158 billion from last spring's estimate of $281 billion; for 2002 the projection dropped from $231 billion to $173 billion. That still sounds like a lot of money. However, only $1 billion of the surpluses in both 2001 and 2002 remain if you separate Social Security, which both political parties have previously pledged to preserve.
The non-partisan CBO released its latest budget projections Aug. 28, which showed a non-Social Security deficit of $9 billion for this year, setting the stage for some gruesome political battles when it comes time to divvy up cash for 2002 discretionary spending in the fall.
Despite the OMB's assertions, it has become obvious that the government will begin running a non-Social Security deficit. The CBO made this explicit, but the OMB's assumptions make it obvious as well.
In the short term, the OMB assumes economic growth of 1.7 percent this year and 3.2 percent next year. This is, however, the most optimistic projection on record, with private forecasters such as the Economist and the Federal Reserve Board typically putting these numbers at closer to 1.6 percent and 2.6 percent respectively. If the OMB is indeed cooking the numbers, reality would more than eliminate the non-Social Security surplus.
The OMB's long-term surplus projections are flawed via accounting for Bush's tax cut, which supposedly will cost us $1.35 trillion over the next 10 years. The IMF, however, after readjusting for interest, the extension of regularly renewed temporary tax credits and relief from the Alternative Minimum Tax, puts the price tag at as high as $2.5 trillion.
The OMB's report predicts a $575 billion total Social Security surplus between 2002 and 2011, but the Center for Budget and Policy Priorities says the government low-balled expenditures by between $800 billion and $1.25 trillion for that time period.
This has set the stage in Congress for what is always a pitched battle for precious discretionary resources.
President Bush is ready. He has already begun talk of the lowered surpluses putting Congress in a fiscal straitjacket, recycling the tired talk of smaller government, even though Bush's policy priorities retain ample funding increases in the latest budget projections. Once discretionary spending and economic realities eliminate the surplus, the catcalls will begin on both sides of the aisle denouncing responsibility for raiding Social Security. The catcalls should be directed at last spring's bloated tax cut.
