Disappearing surplus

The funny thing about smoke and mirrors is that the smoke eventually clears and the eye adjusts to whatever tricks the mirror plays. Or, in the case of the federal surplus Washington seemed to think would grow forever, the cooling economy collides with huge tax cuts and unrestrained spending.

It has been just two months since Congress passed President Bush’s tax cut, but the difference between May and July to the Treasury is profound. Then, the president’s supporters assured the public that, if the government were forced to dip into the Medicare and Social Security trust funds several years hence to pay for the tax cut, the revived economy – thanks to the tax cut – would soon provide the additional revenue needed to repay the debt. Now, even the most optimistic cutters concede that the dipping could begin this year.

The administration’s answer to critics of trust fund raiding is that it’s all just a matter of accounting practices, that it’s all, in the end, just one big pocket that will get refilled when the economy roars ahead. Never mind, apparently, the crush of baby boomers about to put unprecedented demands upon Medicare and Social Security; never mind that six rapid-fire interest rate cuts by the Federal Reserve have failed to jolt the economy or that the greatest threats to long-term and stable economic growth, such as energy uncertainty and scandalously high consumer debt, remain unaddressed.

But the real problem is that the tax cut, even when the going was good, never added up. The story was that it would cost no more than $1.35 trillion over 10 years; the truth, shielded by the smoke and mirrors of alternating implementation dates, creative bookkeeping and phony sunset provisions, is that it will cost something on the order of $4 trillion in its second 10 years. Add to that the inflated numbers used for the projected surpluses, the absurd assumption that future Congresses will reduce spending that this Congress cannot, the promises of a defense buildup and a Medicare drug benefit and all the rest and it becomes painfully clear that the future is not one of surplus but of deficits.

As Congress resumes work on spending bills for the coming fiscal year, it is faced with this sobering fact – the projected surplus of $275 billion this year that argued for the tax cut, after subtracting the proposed borrowing from Medicare and Social Security, and the first year of the tax cut and the spending already approved, now is down to just $6 billion, with that defense buildup and new deductions for charitable contributions and credits for alternative-energy development and that drug benefit yet to fund. And, at least in places outside of Washington, the smoke has cleared and the eye has adjusted.