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Tuesday, August 16, 2005

Government Budget Gimmicks

We’ve heard a lot about private sector corporate accounting scandals.  Here’s George Bush on July 30, 2002 at the signing of the Sarbanes-Oxley Act:

"This law says to every dishonest corporate leader: You'll be exposed and punished. The era of low standards and false profits is over. No board room in America is above or beyond the law."

The government’s budget accounting is as bad or worse.  John M. Berry of Bloomberg agrees:

Federal Budget Making Is 'Let's Pretend' Farce, John M. Berry, Bloomberg: Budget making in Washington has become a continuous political farce of let's pretend. Pretend that new legislation is going to cost a set amount and not a penny more. Pretend that the cost of yet one more tax cut or new spending program is OK because some other spending can be cut to offset it. Pretend that every dollar being spent is worth it because it will create jobs. Pretend that no tax can ever be raised because it would dangerously damage economic growth. The result is a steady diet of large budget deficits, as the nonpartisan Congressional Budget Office reminded everyone yesterday in one of its regular updates of the budget and economic outlook. Assuming current laws were unchanged, as the CBO is required to do, the cumulative budget deficit was projected to be about $2.1 trillion for the coming 10 years. Using some more realistic assumptions about extending expiring tax cuts, increases in discretionary spending and gradually reducing the military costs of fighting in Iraq and Afghanistan, the total would be more than double that amount. Except for the continuing annual surpluses in Social Security, the CBO's baseline deficit projection would have been nearly $4.6 trillion...

The article goes on to detail several specific instances of misleading (a kind word to use here) representations of budget figures.  The disconnect between the reported deficit numbers and the actual deficit is far too large, and much of that can be solved with an honest representation of revenues and commitments.

One final note on deficits.  You will hear a lot about the uptick in revenues and the fall in the deficit forecast in coming days.  As you do, please remember that according to the Congressional Budget Office the uptick is temporary, something the Washington Times story does not even bother to mention.  This graphic on the debt (from here) also puts the news in perspective.

[Update: For more on the budget picture and the interpretation of the latest data on the deficit, see Brad DeLong here and here, and MaxSpeak herePGL at Angry Bear also comments on the deficit figures.]

    Posted by on Tuesday, August 16, 2005 at 02:07 AM in Budget Deficit, Economics | Permalink  TrackBack (0)  Comments (3)


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