Budget shaping up as a bust

August 08, 2005|by Steve Specht

The U.S. Senate GOP Budget Resolution would make deficits worse.

It leaves out large costs, hiding the real budget outlook. The resulting deficits will primarily be caused by drop in revenues, but the resolution still calls for more deficit-financed tax cuts, so debt will continue to soar under priorities and policies contained in the resolution. To the extent the proposed budget does fund continuing programs and new initiatives, it focuses on the wrong priorities.

The Republican spin says that the deficit would be cut in half under this resolution, but this fantasy budget leaves out large parts of the real costs. When one actually factors in omitted costs (Alternative Minimum Tax reform, realistic ongoing war costs, Social Security surplus being spent on tax cuts), we see that the real operating deficits will remain above $500 billion and reach $569 billion in 2010. The resolution would worsen our nation's fiscal outlook at the worst possible time, right before the baby boom generation retires.


Like the president's budget, the Senate GOP Budget Resolution leaves out large costs, making the "spun" deficit numbers look better than the reality. Both plans leave out the cost of Alternative Minimum Tax reform - the old millionaires tax that is increasingly becoming a middle-class tax trap. Both plans fail to provide a realistic longer-term level of funding for military operations in Iraq, Afghanistan and the ongoing war on terrorism.

The president has requested another $82 billion in supplemental military funds for 2005, but included nothing in his budget for military increases for 2006 and beyond.

The Senate GOP Budget Resolution appropriately included a $50 billion reserve fund for these operations for 2006, but far more is likely to be needed, and still includes nothing for the 2007-10 out years. The Congressional Budget Office estimates that ongoing military operations could cost $383 billion over the 2006 to 2015 period, a figure conveniently left out of the Bush/GOP budget discussions.

The projected deficits will be caused by the drop in future revenues (a result of the generous upper class tax cuts), not by increases in spending. Last year, taxes collected as a percent of Gross Domestic Product fell to the lowest level since 1959. However, on the "spending" side of the budget, federal expenditures as a share of the economy are still down from the levels reached in the 1980s.

Despite record deficits, the Senate GOP Budget Resolution provides reconciliation protection for another $70 billion in deficit-financed tax cuts over five years. Specifically, the resolution calls for extending the tax cuts on dividends and capital gains. These tax cuts would provide taxpayers in the "millionaire" bracket with an average annual tax break of $35,000.

The deficits are leading to an explosion in our nation's debt. When President Bush took office, it was projected that virtually all publicly held debt would be paid off by 2008.

If we adopt the policies in the Senate GOP Budget Resolution, and reform AMT and figure in funding war costs at the "actual" rate, publicly held debt will climb to $5.9 trillion by 2008.

Like the president's budget, the resolution would provide more deficit-financed tax cuts, while at the same time calling for damaging cuts in key priorities of the American people. For example, the resolution would cut $4.8 billion from more than 48 education programs. To put that in perspective, the "cost" to the rest of us taxpayers of the president's tax cuts for people making more than $1 million in 2006 is $32 billion.

We can do better. We need a budget plan that puts us back on a path of fiscal responsibility, stops the raid on the Social Security trust fund, and focuses on the right priorities for the American people.

Steve Specht is a resident of Brownsville, Md.

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