Whatever Happened To Bush's Budget Bonanza?Paul Craig Roberts
Remember the $500 billion deficit-reduction package that was the payoff for George Bush's agreement to higher taxes? The ink is barely dry on the fiscal year 1992 budget, and the savings have disappeared. In fact, the deficit is larger than ever.
As the table shows, the five-year deficit projection in the 1992 budget is $802.8 billion higher than the identical projection in the budget for fiscal year 1991. In place of a promised $500 billion decrease, there is a $800 billion increase.
When pressed for an explanation, Administration officials claim that the $500 billion in promised deficit reduction was not an absolute decrease, only a decrease from what the deficit would have been otherwise. This raises an even more puzzling question, because it means that without the deficit-reduction package, the five-year deficit projection would have jumped $1.3 trillion in just one year.
What happened to the economy, to spending, and to revenues from January, 1990, to January, 1991, to account for such a massive increase in the budget deficit? This mystery has attracted little interest--which is a mystery in itself, as such a phenomenal deficit increase is inconsistent with the reports that spending in 1992 is projected to rise only 2.6%.
BACK TO BASICS. Layers of budget deception must be stripped away to solve the mystery--and even then, it is difficult to account for the full increase in red ink. Despite claims of 2.6% budget growth, there has been an explosion in spending--an 18% increase in 1992 over the amount projected in last year's budget. Part of this is accounted for by the savings and loan deposit-insurance bailout, and part of it is the rapid increase in domestic spending, which grew 12% in 1991 over 1990 and is projected to grow 7.4% in 1992.
On Feb. 26, the Heritage Foundation reported that, free of Ronald Reagan, Washington has returned to its main business of feeding the spending constituencies and is "heading for the record books." Through fiscal year 1995, "Bush will spend a cumulative $667 billion above the Reagan growth rate." In just two years, federal spending has moved from 22% to 25% of gross national product--the highest level since World War II.
Just as spending is way up despite claims of cuts, revenues are down despite the $166.5 billion Bush tax increase. After including the tax increase and the Social Security surplus, the 1992 budget still projects $297 billion less in revenue over the 1991-95 period than the 1991 budget predicted.
The actual situation may be even worse. In a recent Cato Institute report, William C. Dunkelberg, dean of the business school at Temple University, and John W. Skorburg, chief economist for the Chicago Association of Commerce and Industry, conclude that the adverse effects of the Bush tax increase on economic growth and employment will boost the deficit by $341 billion over the 1991-95 period.
NO SIREN WARNINGS. Policymakers as well as the public should be startled that the Bush tax increase and deficit-reduction package is followed by an increase in the deficit that is larger than the $726.6 billion, six-year, static-revenue cost of the Economic Recovery Tax Act of 1981.
Whatever we get for the $802.8 billion in additional red ink in the 1992 budget, it won't replicate the benefits to taxpayers and the economy of the 1981 tax cut. It is astonishing that despite this runaway increase in the deficit, we have stopped hearing the siren warnings of the Reagan years that the unavoidable consequences of growing deficits are high inflation, high interest rates, and dangerous dependence on foreign financing.
It was only two years ago that the 1989 Reagan deficit of $153 billion was deemed by many to be so onerous that Bush would have to forsake his "no new taxes" pledge. In 1991, with the deficit more than twice that size, there is scarcely a ripple of disquietude. Now that the spending machine is back in gear, deficits no longer are Washington's concern.
If the eight-year Reagan expansion could only bring a $220 billion deficit down to $150 billion, we have to wonder how the weaker economic growth forecast for the 1990s is going to bring down 1991's $318 billion deficit. There are plenty of politicians and their media allies who will call for still more tax increases. Are we doomed to watch taxes chase up spending in the budgets of the 1990s?
If so, normalcy will have returned to Washington, as government resumes its assault on our property rights to our own incomes.
THE MYSTERIOUS GROWTH OF PROJECTED DEFICITS Year 1991 Budget 1992 Budget Increase* Issued 1/90 * Issued 1/91 * 1991 -$63.1 -$318.1 $255.0 1992 -25.1 -280.9 255.8 1993 + 5.7 -201.5 207.2 1994 +10.7 -61.8 72.5 1995 + 9.4 - 2.9 12.3 TOTAL -62.4 -865.2 802.8 *Billions of dollarsDATA: U.S. BUDGET