How do you make a small fortune in a tough business? Start out with a large one.
It's an old joke, but one with recurring relevance. Take the current White House spin on the deficit, for example.
What's the surest way to make a $300 billion deficit sound like good news? Tell people that it could've been more than $400 billion.
Nothing like a sky-high estimate to lower everyone's expectations. Then, if the deficit eases a bit over the next few months, you can point to a positive trend.
It sounded a lot like that this week at the White House, where the budgeters' latest best guess is that the U.S. budget deficit for the fiscal year ending Sept. 30 is (drum roll): $296 billion. To a lot of people, that sounds pretty good, if only because it lets you start with a 2, instead of a 3 or a 4, before saying "hundred billion."
The GDP Perspective
There are other good things to say about the federal government's new, slimmer figure. You can say it's just 2.3 percent of the gross domestic product, which sounds quite manageable when compared to percentages twice as high and more in the 1980s and early 1990s. The deficit percentage of GDP has, in fact, been higher in 17 of the past 25 fiscal years.
But here's the kicker. The new $296 billion figure sounds best of all when you remember what we were all told about the deficit in February. That was when it was going to be $426 billion, some 42 percent more than it turned out to be in this week's "Midterm Assessment." That February figure would have been the largest actual deficit ever, in nominal dollars. As such, it just might have been a rallying point for anti-Bush conservatives who regard him as a spendthrift.
But not to worry. As it turns out, things really got better in a hurry after February. The government now says its revenue flow from individual taxes is rising at a 15 percent annual rate, with revenue from corporate taxes at 19 percent. Those are obviously big, impressive numbers. And President Bush himself came out to tout them as proof positive his tax cuts back in 2001 and 2003 were really supercharging the economy.
Still, it's remarkable how little of this supercharging effect could be foreseen in February, just five months ago. The sudden turnaround has prompted skeptics (such as Kent Conrad of North Dakota, ranking Democrat on the Senate Budget Committee) to say the books were being cooked to create a false sense of momentum in the midst of a $300-billion fiasco.
But it's probably not necessary to falsify anything. All you have to do is pull your green eyeshade a little tighter in the winter ("Hard to tell which way this is going") and then slap your forehead when the gusher gets uncorked in the spring. Can't be too surprising anymore — it's happened the last three years in a row.
It's also interesting to note that the same White House budgeters are already telling us the annual budget shortfall will increase next year to $339 billion, and then shrink dramatically to just $188 billion in 2008 — which is, of course, the next presidential election year.
Defending Deficit Estimates
You can't blame the Bush administration for being hypersensitive on the budget issue. This White House is the first one to inherit a budget surplus — or even a budget in balance — since 1969. In the intervening three decades, the deficit issue has often loomed large. Ronald Reagan said 1980's trillion-dollar national debt (the accumulation of all previous deficits) amounted to a national scandal, and the issue helped him take power. It never seemed to faze him that over the next eight years, the national debt doubled.
In 1988, Reagan's successor, the first President Bush, ran on a pledge to lower the budget deficit. He took it so seriously that he allowed a tax increase in 1990, violating another pledge he had made. That triggered many defections among conservatives, who opposed his re-nomination and, in some cases, defected to support anti-deficit activist Ross Perot's candidacy in 1992. Perot rode the issue to 19 percent of the national vote in November, helping Bill Clinton make the first Bush a one-term president. In office, President Clinton pushed further tax increases that contributed to his party's loss of Congress in 1994.
The current President Bush knows all this history by heart. But the lesson he has taken from it is not the one learned by Clinton or the elder Bush, who took huge political risks to strengthen the revenue flow through tax increases — risks that cost them, but also produced the budget surplus President Bush inherited in 2000.
Instead, the current President Bush has studied the very different deficit lesson taught by Reagan. That lesson is this: the deficit doesn't matter to voters so long as tax rates are down, the economy is decent and federal spending can be blamed on somebody else.
In his speech this week on the deficit, the president cited lower tax rates and good macroeconomic numbers and blamed high spending on Congress, Social Security and Medicare. He has learned well the lesson he chose to learn.