Yesterday, the Congressional Budget Office announced that it now believes the federal budget deficit for the current fiscal year will be $422 billion, or $56 billion less than it had projected in January 2004. Vice President Dick Cheney immediately responded that this change in forecast was "a direct result of economic growth that came about as a result of the tax changes that the president put through, and the Congress supported."
Perhaps the vice president's staff did not have the opportunity to read the CBO report before they prepared the statement, or perhaps they are so desperate for good economic news that almost any tidbit will meet the test, but citing the CBO report as a signal of the success of administration economic policies is an extraordinary reach even for Mr. Cheney.
First of all, while the CBO believes the deficit will be about 10 percent smaller in 2004 than it had originally forecast, it simultaneously forecast that deficits over the next five years will be worse than the January forecast and that the public debt will grow to nearly $6 trillion by 2009, or about $100 billion more than had been anticipated in January. So the question is whether the president's tax policies produced one or both of the changes in forecast.
But even more striking is the fact that the CBO does not attribute the fiscal 2004 change in the deficit to greater optimism about the pace of economic growth. In fact, the CBO reduced its projection for economic growth during the current fiscal year, as have most private forecasters. In January, the CBO had predicted that the economy would grow by 4.8 percent in the current fiscal year. It has now lowered its projection to 4.5 percent. The only thing propelling revenues projections at this point is the fact that inflation is much higher than forecast. In January, the CBO believed that the Consumer Price Index would increase by 1.6 percent. It now believes that the increase will be closer to 2.6 percent. The short-term result is more revenue, but over the longer term that increase will also result in higher Social Security payments and increases in the cost of a variety of government activities ranging from military pay to homeland security.
Ultimately, larger deficits will force more borrowing and higher interest payments. The CBO now forecasts that net payments on the public debt will rise from $153 billion this year to $302 billion by fiscal year 2009, making it by far the fastest-growing portion of the federal budget. The $149 billion increase is equal in size to the combined budgets of the departments of State, Treasury, Justice, Interior, Education, Labor, Energy and Commerce in 2004. The annual interest payments that the CBO now forecasts for 2009 stand in dramatic contrast to the forecast it made for interest payments just three-and-a-half years ago, when it predicted they would drop to $58 billion a year by 2009. Perhaps the vice president would like to give the tax cuts credit for that change in estimates.