Can President Bush Rein In the Red Ink?
January 28, 2006; Page A7
THE MAIN EVENT
Bush is expected to use his State of the Union address Tuesday to call for new efforts to bring the federal budget under control.
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A report last week from the Congressional Budget Office estimates that the federal government's budget deficit in fiscal 2006, at $337 billion, will be even larger than last year's. That raises questions about whether President Bush can meet the goal he set in 2004 of cutting the deficit in half by the time he leaves office in January 2009. The administration says that tight controls on spending will enable it to keep its word. Treasury Secretary John Snow has talked about "sacrifices," but the administration hasn't been specific about what cuts it will seek.
If the economy grows fast enough, the deficit as a percentage of gross domestic product could approach Mr. Bush's goal, but not necessarily because of specific budget measures. Even if the president meets his goal, the fiscal problems reflect longer-term issues, as baby boomers begin to retire and collect Social Security and Medicare benefits. Here's a look at issues in the deficit debate:
Budget Snapshot: In fiscal 2006, ending Sept. 30, the federal government will likely spend $2.65 trillion and bring in just $2.31 trillion in revenue, creating the projected $337 billion deficit. That figure doesn't include Iraq war and hurricane-recovery costs that could be requested outside the usual budget process. In fiscal 2005, the deficit was $318 billion, including war and other costs. In 2004, the deficit was a record $412 billion.
When Mr. Bush took office in 2001, there was a budget surplus of $236 billion. He blames the return to deficit spending on the stock-market decline, the 2001 recession, emergency spending on wars in Afghanistan and Iraq and cleanup efforts following hurricanes Katrina and Rita. Democrats, and some independent analysts, say Mr. Bush's tax cuts also play a role.
Mandatory Spending: Social Security, Medicare and Medicaid will consume $1.1 trillion in fiscal 2006, or 43% of all federal spending. As baby boomers start to become eligible for Social Security and Medicare in 2008, spending on those programs will grow faster. By 2016, those programs will account for more than half of all federal spending, or 11% of the entire U.S. economy. And if current trends continue, under the CBO's midrange forecast, that figure will grow to nearly 20% of the economy by 2050. Today, the entire federal budget accounts for 20% of GDP.
Tax Cuts: Starting in 2001, Mr. Bush implemented a series of tax cuts that are expected to total $1.8 trillion over the next 10 years. Most are set to expire in 2010, but the president is pushing to make them permanent. The CBO estimates that, if the tax cuts were allowed to expire, the deficit would become a $38 billion surplus by 2012. If the tax cuts are made permanent, the budget office projects a $312 billion deficit that year.
BY THE NUMBERS
Federal revenue currently accounts for about 18% of the economy, slightly below the average since 1965. Revenue peaked at 21% of GDP in 1944 and again in 2000. If the president's tax cuts are made permanent, CBO numbers show that the government's tax take would be 17.3% of GDP in 2016, according to the liberal Center on Budget and Policy Priorities.
Defense Spending: Defense spending in 2006 will top $500 billion, or 3.8% of U.S. economic output, and represent about one-fifth of the entire budget. But that doesn't take into account an additional $50 billion that Mr. Bush is expected to seek for the wars in Iraq and Afghanistan.
The total for defense in 2005 was $494 billion, including spending on Iraq and Afghanistan.
Nondefense Spending: Nondefense "discretionary" spending, which accounts for another one-fifth of the total budget, includes everything from housing to education to homeland security and is the area Mr. Bush will target for budget cuts.
--Compiled by Lauren Etter
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POINTS OF VIEW
"There's a baby-boomer bulge. I was born in '46, on the leading edge of what we call the baby boomers, and there's a lot of us getting ready to retire, which means you are going to have to pay for a lot more people in the system, plus we've been promised greater benefits than the previous generation. So the system is going to go broke unless we do something about it."
--President Bush
"Before Republicans won control of both houses and the White House, "they thought that Washington was a cesspool. Now they think it's a hot tub, and they're the ones bringing the keg to the party."
--Daniel Mitchell, a senior fellow at the Heritage Foundation, a conservative think tank
"If you look at the numbers and the trajectory we're on, the next five years are the best of times, and then it gets really hard because of Social Security and Medicaid. Regardless of what any administration or Congress does in the next five years, we're going to wake up and have a big problem."
--Douglas Holtz-Eakin, a former director of the Congressional Budget Office
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FACTS
Fiscal 2005's total federal budget deficit was $318 billion, about equal to the GDP of Ukraine or Belgium. That is the equivalent of spending about $10,000 a second for a year, $36 million an hour or $870 million a day.
When King John signed the Magna Carta, he promised to consult with the public before raising taxes, unless the revenue was needed 'for ransoming our person, for making our eldest son a knight, and for once marrying our eldest daughter.'
Pork projects doled out by Congress amounted to about $27 billion in fiscal 2005, or about 1% of the $2.5 trillion budget. Some of these projects: $6 million for 'wood utilization research' and $25,000 to study mariachi music.
In 1975, Social Security, Medicare and Medicaid consumed 25% of all federal spending. Today, the three account for 43%. By 2030, there will be two workers, instead of today's 3.3, paying into the Social Security system for every one beneficiary.
The federal government in 2005 spent on average over $20,000 for each household. In figures adjusted for inflation, the government spent about $18,000 per household under Clinton, $14,000 under Reagan and $12,000 under Nixon.
In 2005, the U.S. government spent about $71 billion for Operation Iraqi Freedom. The same year, it spent about $515 billion for Medicare and Medicaid. |
