The Deficit President

And how he’s getting away with it.

In a column last March generally cheering President Bush’s tax cut, Newsweek’s Fareed Zakaria warned that, “if the surpluses shrink, the GOP will be blamed for the resulting deficits and for years after will be tarred as the fiscally irresponsible party.” This was the consensus view. If you asked people what would happen if the passage of the Bush tax cut was followed not only by the government dipping into the Social Security surplus, which the president swore would never happen, but several years of actual deficits, almost everybody would have said that Bushonomics would be repudiated.

Well, just last week, less than five months since the tax cut was enacted, White House Budget Director Mitch Daniels admitted that the federal government is going to be in the red for the foreseeable future. And is this being interpreted as an unambiguous vindication for the tax cut’s critics? Not exactly. The New York Times, typifying the reaction, consigned the story to its inside pages and would venture only to say that the deficit would “lead to an intense partisan battle over who is to blame for the stunning turnabout in the nation’s fiscal condition.” After all this time, who can even remember which party pushed through a huge tax cut, and which party warned it would lead to deficits? It’s like the Simpsons episode where Homer forgets to pick up Bart at soccer practice. “I know you’re mad at me right now,” he tells Bart, “and I’m kinda mad too. I mean, we could sit here and try to figure out who forgot to pick up who ‘til the cows come home. But let’s just say we’re both wrong and that’ll be that.”

Part of the reason the deficit hasn’t hurt Bush, of course, is that everybody’s paying less attention to domestic policy these days. But it’s also because the White House has managed to muddle the issue with enough budgetary mumbo jumbo to leave everybody scratching their heads. Budget Director Daniels attributes the deficit to a “convergence of factors,” namely, “the recession, the newly necessary spending,” and “new estimates of long-term growth.” Hmm. Are there any factors missing here? Oh, yes, the tax cut! When specifically asked if the tax cut had any role in the deficit, White House Spokesman Ari Fleischer replied that, in 2001, the surplus had dropped by $154 billion, while the tax cut was only $40 billion, so “something else was going on. That something else, we now know, is a recession.”

This bit of analysis is flawed in so many ways I almost don’t know where to start. First, Fleischer seems to be admitting, without realizing it, that the tax cut is at least 25 percent (40 out of 156) responsible for the deficit. Second, Fleischer only mentions the budget numbers for this year. But deficits are projected to begin starting next year. And the tax cut is structured so that it costs relatively little at first, but soars later. In 2010, according to congressional estimates, it will reduce federal revenues by $260 billion.

Third and most important, it’s bizarre for Fleischer to deny that the tax cut is going to reduce tax revenues, since that was the point of it: Bush said over and over that “Washington” would spend the surpluses unless they were returned to the people as tax cuts. This contradicts not only what the administration is saying now about the looming deficit but also its case for a second tax cut, the “stimulus bill.” That case is essentially the old free lunch: Cutting taxes will increase tax revenues. “Surpluses are returned through strong growth,” Fleischer maintains, “In the absence of a stimulus package, there is a strong possibility, according to private sector forecasters, that the economy will come back with only low to perhaps moderate growth.” So the previous tax cut was supposedly needed to make the surplus disappear. The next one is needed to bring it back. Whatever.

It’s true, as Daniels and Fleischer say, that a big reason we’re facing deficits is that the economy turned south. Where they go wrong is portraying this as an unforeseeable event for which the White House can’t be held responsible. When the Bush tax cut was being debated, one of the key points made against it was that it left no room for error in case budget projections turned out to be too optimistic or some unforeseen crisis arose. Indeed, just about every speech or op-ed criticizing the tax cut made this argument in some form. And just about every time Bush and his spokespeople were presented with this objection, they would reply that they had erred on the side of caution. Here, to take one of many examples, is what Daniels said on Nightline last February when Ted Koppel questioned his rosy assumptions:

Well, we really can’t miss here. … We’ve been underestimating revenue by as much as $80 billion a year. And we are likely to continue doing that. … We’ve constructed a budget very carefully, on very conservative assumptions, and leaving lots of room for the unforeseen contingencies of the future.

The entire public rationale for the tax cut was not merely wrong or reckless, but outright dishonest. When Bush took office, remember, most people wanted to pay off the national debt and spend money on things like education and prescription drugs far more than they wanted tax cuts. Bush was only able to make his tax cuts acceptable by convincing the public that he first planned to take care of popular priorities and only cut taxes with all the leftover money.

So, last week a reporter asked Fleischer what, given projected deficits, Bush planned to do about his promise to enact a prescription drug benefit. He replied that “anything dealing with large spending increases, particularly creation of new entitlements, has to be done with an eye toward what is achievable.” In other words, it turns out we can’t afford a drug plan, so too bad. If Bush’s you-can-have-it-all budgeting was merely a miscalculation, he could scale back the tax cut to make way for more debt reduction or spending. But the truth—which subsequent developments now expose—is that Bush always placed his tax cut ahead of debt reduction or the various government policies he endorsed as a “compassionate conservative.”

It wasn’t just some giant miscalculation. It was a lie.