STORMY BUDGET FORECAST

In the Bush administration’s annual overestimation of the deficit, it blamed Hurricanes Katrina and Rita for creating substantial, if temporary, trouble in 2006 with the nation projected by the White House to finish $400 billion in the red. If previous patterns hold, the deficit won’t be as high as projected and the president will claim his policies were the cause of the falling number. The nation has adjusted to this charade, which has become more or less meaningless. But the cause cited – temporary natural disaster – is something else, and creates new doubts about the White House’s intentions with its next budget.

Total relief spending on Katrina is expected to reach $150 billion. In 2005 alone, the Bush-era tax cuts cost the Treasury $225 billion which is the equivalent of nearly half the total deficit since 2001. Not only isn’t this a temporary situation, it will grow worse for the deficit as the effect of the tax cuts grows – either by reaching more taxpayers, as is the case with the exemption to the alternative minimum tax, or by being made permanent, which is on the congressional agenda for 2006.

The tax-and-spending pattern is especially clear in the reconciliation bills currently before Congress, where $40 billion in spending cuts in health care and other programs for the poor are more than offset by as much as $96 billion in tax cuts – digging the deficit hole deeper. The response from majority Republicans is that more spending cuts are on the way.

Federal revenues as a share of the economy are now among the lowest during the last 30 years, and this includes enormous increases in the cost of health care. The administration claims the tax cuts have stimulated the economy and pulled the nation out of its downturn. Certainly, some of the middle-class cuts encouraged consumers to spend more initially, but the nation’s overall economic performance measured by net worth, labor-market expansion and growth in wages has been unremarkable. One exception is corporate profits, which are way up compared with other growth periods.

News reports say the president’s next budget proposal could include a 5 percent cut to domestic appropriations, not counting homeland security or the military. That would mean, for instance, shifting more Medicaid costs to the states, finding more savings in Temporary Assistance to Needy Families, reducing block grants to communities, perhaps changes in Medicare. These would create serious hardships for many Americans but are especially tough to take when tax cuts are going to the wealthy at twice the rate of spending cuts.

The net result is that the nation remains unprepared to address troubling forecasts for the financial health of Medicare, important adjustments to Social Security or paying for the war on terrorism or other emergencies. The nation’s deficit problem isn’t temporary but structural and the tax cuts are the primary reason the structure looks less and less sound.