Guess Again
No one knows what the economy will do over the next 10 years, but everything in Washington is based on that outcome.
Washington is steeped in unreliable numbers, and the confusion will only get worse next week when Democrats and Republicans clash yet again over the recently enacted tax cut. As usual, the factions have armed themselves with the same exact set of numbers to bolster their rants, only this time it's not so much a matter of whom you believe, but when you believe them.
In January, the Congressional Budget Office issued its best guess on the projected 10-year budget surplus. Given expected growth rates and tax revenues, the CBO figured the federal government would have an extra $5.6 trillion in its pocket when the dust finally settled a decade hence. The Republicans immediately rejoiced and demanded a tax cut, which eventually came in at about $1.35 trillion. The Democrats cried foul, charging that the CBO estimate was wrong because it relied on overly optimistic growth projections. They said a much smaller surplus was in store, and that the lion's share of that must go toward buttressing Social Security and Medicare, lest every baby boomer die a slow, impoverished death in retirement.
Now the numbers are fluttering and both sides are scrambling for a new position on the revisions. The CBO recently issued a gloomier 10-year estimate, spurring Democrats to issue a triumphant "gotcha" that still reverberates inside the Beltway. On a Sunday talk show, Senate majority leader Tom Daschle (D-S.D.) even literally said, "We told you so." At a meeting with reporters this Tuesday, Finance Chairman Sen. Kent Conrad (D-N.D.) upped the rhetorical ante, charging that the shortfall would result in a $17 billion "raid on Medicare" this year and completely wipe out $38 billion in contributions to the fund in 2002. Social Security would take a $4 billion hit next year as well. The CBO did a terrible job with its growth estimates in January, you see, but now they are absolutely dead-on correct. Conrad promised to call hearings next week, and said Republicans had an "affirmative obligation to come up with spending cuts."
Republicans have publicly denied that the crunch will come to pass. Sure, Bush's economic advisor Larry Lindsey added fuel to the fire last week when he conceded that economic woes could drop this year's surplus from $260 billion to around $200 billion. No problem. The GOP faithful contend that the tax cut, rather than a drain on revenues, is just the salve the economy needs. "President Bush's tax cut is crucial in giving renewed strength to the economy," according to a statement Lindsey issued Sunday. In a Monday briefing, White House Spokesman Ari Fleischer said, "The decline in revenue that you are accurately describing is caused by low growth in the economy. The solution to low growth is to cut taxes. Taxes have now been cut in an overwhelmingly bipartisan fashion." It's all about growth, you see, and the growth projections everyone was using in January were the right ones. The gloomy ones folks are using now are wrong, because they don't take the tax cut stimulus into account.
So whom do you believe? If you read a CBO report, you might decide to take your own stab in the dark. In a summary of its January report, CBO officials estimated that by 2006, just five years away, the accumulated surplus will probably be in the $400 billion to $600 billion range. Or it might be as high as a trillion. Or there might be a $50 billion deficit. Come to think of it, there's a 10 percent chance it might fall outside of that range, too. For the full 10-year projection, the $5.6 trillion figure is an even more haphazard guess—the predicted range is between about $1.6 trillion and $8.9 trillion. The report summary mentions that the CBO is mandated to estimate the surplus assuming there will be no changes in legislation over the next 10 years, further separating the projections from reality.
To their credit, CBO officials know that the 10-year numbers are at best a wild, if hopefully educated, guess. They not only admit it, they talk themselves blue in the face trying to explain it to political fortune tellers who have more important uses for the numbers. It will all come out in the hearings next week. Democrats will proudly don the mask of fiscal responsibility. They will forget that a pile of their own senators switched sides on the tax cut. They will try to force the GOP to make politically painful cuts in the name of Social Security and Medicare. It's the only responsible thing to do, they'll say, given what the economy will be like in 2011.
For their part, the GOP will sing the praises of the supply-side miracle, repeat ad nauseam the names of the defecting Democrats who went with them, and warn that any attempt to tamper with the status quo will threaten the health of the 2011 economy. Lost in the scuffle will be a lonely subchapter from the January report, a subchapter that all the players forgot to read. It's a bracing little passage called "Uncertainty in the Projections."