President Bush today announced his budget proposal for Fiscal 2005. Thus far, most of the outcry has focused on the plans to spend $2.4 trillion and the mammoth deficit. But spending is only half of the story. Too little attention has been focused on the other half—revenues.
President Bush has submitted four budget proposals to Congress. Each year, he lays out how much he’d like Congress to spend on programs. Each year, he has proposed spending one sum and then signed off on a substantially greater sum. Each year, the president also projects how much money Congress will have at its disposal. And each year, he has promised that revenues will come in at one sum, only to see them fall far short of expectations.
In his Fiscal 2002 budget message, released in April 2001, President Bush forecast that revenues for Fiscal 2002—October 2001 through September 2002—would be $2.19 trillion, about 2.5 percent higher than the total estimated for 2001. (See Table S-3 on Page 187.) As shown in the tables accompanying last year’s budget message, revenues for the year turned out to be $1.853 trillion—15.5 percent below the estimate. (See Table S-1 on Page 311.)
In February 2002, the administration projected that revenues for Fiscal 2003, which ran from October 2002 to September 2003, would be $2.048 trillion—5 percent higher than the by-then reduced estimate for 2002. (See Table S-1 on Page 395.) Instead, as shown in the tables accompanying today’s budget message, they came in at $1.782 trillion—13 percent below the estimate.
In February 2003, the administration predicted that Fiscal ‘04 revenues would grow from an estimated $1.836 trillion in Fiscal 2003 to $1.922 trillion in Fiscal 2004—up 4.6 percent. (See Table S-1.) But today, the estimate for Fiscal 2004 was cut by 6.5 percent, to $1.798 trillion. Detect a pattern? (Something tells me this isn’t what the administration had in mind when it promised to use dynamic scoring.)
Armed with three years of experience in producing overly optimistic predictions, today the Office of Management and Budget forecast that revenues next year will rise smartly by some 13 percent. That’s implausible. Revenues haven’t risen that much since 1981. (Click here for an Excel chart of government receipts going back to 1901.)
Instead of being chastened by its poor track record, the OMB has become emboldened. With each passing year, as Fiscal 2005—the first fiscal year of a prospective Bush second term—has drawn nearer, the Bush administration has forecast that revenues will rise by a greater degree. In 2001, it projected revenues would rise 4 percent in the year; in 2003, the prediction was a rise of 11 percent. Now, it’s 13 percent. (Will President Bush’s signature proposal for a second term be a huge and immediate tax increase?)
The latest figures cast doubt on the capabilities of OMB Director Joshua Bolten, subject of a richly undeserved puffer in today’s New York Times.Sure, reducing taxes in between budget messages is likely to mess with the estimates. But when it released all those forecasts, the administration planned to cut taxes.
The faulty estimates offer a pretty devastating refutation of the supply-side fantasy. If you cut taxes, and cut them again, and again, government revenues will be far more likely to fall than to rise. Of course, one could ascribe the tendency to overestimate revenues as yet another manifestation of the president’s boundless optimism. But the line between optimism and self-delusion is a thin one. And at the OMB, it seems to have been erased.