For Now, Don't Sweat The Deficits

Federal Spending: The ink isn't even dry, but already the squawking can be heard about President Bush's new five-year budget plan and the "exploding" deficits it contains. As usual, it's much ado about nothing.

Those who worry about the deficits of $409 billion and $407billion expected for 2008 and 2009, respectively, should put things into perspective.

First, those deficits will amount to about 2.9% and 2.7% of GDP, up from about 1.2% this year, but about in line with the average -- 2.6% -- since 1980.

Second, if you take those projections seriously, then you have to look at what is predicted for the outlying years as well. The Bush budget plan sees not only the budget deficit shrinking but disappearing and going into surplus by 2012 (see chart).

We realize many things can happen between now and then.

For instance, Congress' failure to address our looming entitlements crisis, something that President Bush has brought up repeatedly only to be rebuffed, almost certainly will create a true fiscal crisis sometime in the next decade -- one that won't be papered over by one-time tax hikes, or bogus "spending cuts," or reductions in defense, or even the complete elimination of earmarks.

Moreover, Congress might decide not to make Bush's tax cuts permanent, hitting the average taxpayer with a $1,800 tax hike in 2011 -- enough to sink the economy and drag down government revenues for years to come.

Given this, we aren't concerned about the deficits over the next two years. They're a short-term problem, the result of two things: One, a forecast slowdown of economic growth; and two, a badly needed ramp up in defense spending, which will rise about 7% next year.

As the Heritage Foundation pointed out, "Government spending grows during wartime, and the budgets during Bush's tenure reflect that reality."

Exactly. We recall during the 1980s President Reagan being harshly criticized for his "runaway deficits." And as a share of GDP, they were indeed much larger than today.

But as it turns out, the decade of the 1980s wasn't so bad. Incomes rose and virtually every American got richer, after the bleak 1970s. And we vanquished our main communist threat -- without firing a shot. Quite a record for an economy supposedly hobbled by deficits.

Those who think lower deficits aren't achievable today should look at the historical record. To address long-term deficit concerns, which are real, Bush proposes 2.3% in annual savings over five years, largely through cuts in Medicare and Medicaid.

By comparison, that's almost exactly the same size as the savings that came out of the 1993 and 1997 budget deals. Those savings led to a budget surplus lasting from 1998 to 2001.

Contrary to current myth, it was the combined effects of the stock market crash, the Clinton recession and spending on defense after 9/11 that created today's deficits -- not a spending binge by President Bush.

Since 2004, deficits have been shrinking, thanks to Bush's tax cuts, which revived the U.S. economy. As we noted, a temporary slowdown in the economy and a defense buildup are the reasons the deficit is expected to grow.

Why bring this up? We're in the midst of a political battle right now, and a lot of things are being said that aren't true.

The biggest fib is that Democrats will "change" Washington and be "fiscally responsible." As the SmallGovTimes.com Web site reports, Democratic candidates promise huge new spending, led by Barack Obama ($287.0 billion) and Hillary Clinton ($218.2 billion).

That spending will either result in higher taxes or higher deficits or both. Either way, while they criticize Bush on the stump, they're not being honest about their own fiscal recklessness.

Bush's "deficits" won't last. Sure, the red ink grows for now. But by cutting entitlement spending and making his tax cuts permanent, Bush makes it possible to have a balanced budget in the future -- and not just empty promises.