FEDERAL BUDGET RIDDLES

Not only is it difficult to imagine the billions of dollars that make up the annual budget deficit of the United States, the White House during the last several years has initially overstated the size of the deficit so that when the actual number is announced it was able to claim the news is not nearly as bad as thought. Last year, for instance, the White House called the deficit $521 billion, then announced victory when it landed at $412 billion.

This year, however, the deficit is actually falling as revenues rise beyond expectations – some $100 billion higher than initially expected. That may be very good news for Republicans, who have argued that tax cuts would generate growth and, therefore, taxes, or it may be a one-year blip. Either way, it should be worth Congress’ time to find out.

Writing in the National Journal, budget expert Stan Collender observes that Congress can’t answer questions about the budget surge because it is not even asking about the drop in the deficit and other major issues such as the effect of the price of oil on the budget (the federal government is a huge purchaser of oil) or the impact of increases in short-term interest rates set by the Federal Reserve and the fact that long-term rates haven’t responded to record-setting deficits.

“The specific issues here are actually beside the point,” Mr. Collender writes. “The important question is why no one with federal budget responsibilities actually seems to be interested in the budget. How is it possible that, with a $300 billion to $400 billion deficit likely every year for quite some time, continuing big increases in government borrowing on the way, and changes like oil price increases in many key areas of budget activity, no one in a position of power is talking about any of it?”

It is an excellent question, and particularly considering the Republican promises about the effect of the tax cuts, the possibility of them being correct should create interest. Or maybe they’ve already heard from Congressional Budget Office director Douglas Holtz-Eakin, a former Bush White House economist who recently told The Washington Post that the revenue increase had more to do with one-time savings than any permanent dynamic. He listed corporate tax cuts in 2004 creating one-year tax holidays and an investment incentive that ended Dec. 31 of last year as being responsible for at least part of the recent increase.

Perhaps, but those conditions were well known before the estimates were made and so should have been accounted for. Congress not long ago took a serious interest in the effect of the deficit, not only as a debt imposed on future taxpayers but as a drag on the economy and a restriction on entitlement programs. David Walker, comptroller of the Government Accountability Office, has totaled the deficits from Social Security, Medicare and general spending and finds that in the not-distant future, Americans will be spending the large majority of their tax dollars on just those three expenses unless government spending patterns change significantly.

They won’t change if Congress ignores them. But grinding through budget numbers is an essential function of congressional committees – and with a $100 billion piece of good news, now is a good time to answer some puzzling federal budget questions.