Who Lost the U.S. Budget?
By PAUL KRUGMAN - NYT, March 21, 2003 - original
The Onion describes itself as "America's finest news source," and it's not an idle boast. On Jan. 18, 2001, the satirical weekly bore the headline "Bush: Our long national nightmare of peace and prosperity is finally over," followed by this mock quotation: "We must squander our nation's hard-won budget surplus on tax breaks for the wealthiest 15 percent. And, on the foreign front, we must find an enemy and defeat it."
Whatever our qualms about how we got here, all Americans now hope that the foreign front proceeds according to plan. Meanwhile, let's talk about the fiscal front.
The latest official projections acknowledge (if you read them carefully) that the long-term finances of the U.S. government are in much worse shape than the administration admitted a year ago. But many commentators are reluctant to blame George W. Bush for that grim outlook, preferring instead to say something like this: "Sure, you can criticize those tax cuts, but the real problem is the long-run deficits of Social Security and Medicare, and the unwillingness of either party to reform those programs."
Why is this line appealing? It seems more reasonable to blame longstanding problems for our fiscal troubles than to attribute them to just two years of bad policy decisions. Also, many pundits like to sound "balanced," pronouncing a plague on both parties' houses. To accuse the current administration of wrecking the federal budget sounds, well, shrill — and we don't want to sound shrill, do we?
There's only one problem with this reasonable, balanced, non-shrill position: it's completely wrong. The Bush tax cuts, not the retirement programs, are the main reason why our fiscal future suddenly looks so bleak.
I base that statement on a new study that compares the size of the Bush tax cuts with that of the prospective deficits of Social Security and Medicare. The results are startling.
Accountants estimate the "actuarial balance" of Social Security and Medicare the same way a private insurance company would: they calculate the present value of projected revenues and outlays, and find the difference. (The present value of a future expense is the amount you would have to invest today to have the money when the bill comes due. For example, if $1 invested in U.S. government bonds would be worth $2 by the year 2020, then the present value of $2 in 2020 is $1 today.) And both programs face shortfalls: the estimated actuarial deficit of Social Security over the next 75 years is $3.5 trillion, and that of Medicare is $6.2 trillion.
But how do these shortfalls compare with the fiscal effects of recent and probable future tax cuts?
The new study, carried out by the Center on Budget and Policy Priorities, estimates the present value of the revenue that will be lost because of the Bush tax cuts — those that have already taken place, together with those that have been proposed — using the same economic assumptions that underlie those Medicare and Social Security projections. The total comes to $12 trillion to $14 trillion — more than the Social Security and Medicare shortfalls combined. What this means is that the revenue that will be sacrificed because of those tax cuts is not a minor concern. On the contrary, that revenue would have been more than enough to "top up" Social Security and Medicare, allowing them to operate without benefit cuts for the next 75 years.
The administration has tried to deny this conclusion, inventing strange new principles of accounting in the process. But the simple truth is that the Bush tax cuts have utterly transformed our fiscal outlook, for the worse. Without those tax cuts, the problems of an aging population might well have been manageable; with them, nothing short of an economic miracle can save us from a fiscal crisis.
And there's a lesson here that goes beyond fiscal policies. On almost every front the outlook for the United States now seems far bleaker than it did two years ago. Has everything gone wrong because of evildoers and external forces? In the case of the budget — and the economy and, yes, foreign policy — the answer is no. The world has turned out to be a tougher place than we thought a few years ago, but things didn't have to be nearly this bad.
The fault lies not in our stars, but in our leadership.