The Bush administration is rolling out all of its communication artillery to flack the latest estimates on what the federal government spent and received in revenues during the 12 months ending September 30.
The $248 billion deficit that is now estimated for the past fiscal year represents about a half trillion dollar a year plunge in the nation’s fiscal health since George W. Bush took the oath of office. Nonetheless, it is being touted as a “dramatic reduction in the deficit” because it is so much smaller than the administration itself had previously predicted.
Such rosy rhetoric is as silly as it is calculated. As The National Journal’s budget analyst Stan Collender noted last January, the administration’s forecast of a $400 billion deficit was blatantly out of line with what nearly all analysts were projecting and contrived for purely political purposes:
This latest Bush administration budget pronouncement should be treated with doubt, skepticism, and perhaps even outright contempt. The reason is that this president has a well-established history of overstating the deficit early in the year and then taking credit when it turns out to be lower than projected, even if he has done nothing to make that happen.
In fact none of the numbers released today indicated the success of stated administration policies. Defense spending was down by $12.7 billion not because of cuts to the defense budget but because it took the White House and Congress so long to agree on a supplemental appropriation package needed to fight the Iraq war. The upshot: much of the contracting took place late in the fiscal year and now that spending will count in the fiscal year that began two weeks ago rather than earlier as they had forecast.
No money will be saved. Needed services and equipment for our fighting men and women will simply get to those in the field who need them a little slower than anticipated.
Medicare spending is also way below earlier predictions. That is not because of a change in law or any direct cost-savings efforts by the administration. Rather, as Colander predicted, earlier estimates were “overstated.” In addition, the lower numbers were evidently at least partially due to the unpopularity of the administration’s new prescription drug program.
The “good news” on the revenue side also turns out to be not such good news for most Americans or the long term health of the economy. Revenues were up $121 billion over the forecast in January—again the Collender affect—but what happened to revenues also tells us something about what is happening to the economy.
In January the administration predicted corporate tax receipts of $277 billion based on an estimate that corporation profits for this calendar year would total $1.5 trillion dollars. That estimate is nearly 50 percent above profit levels of two years ago, and almost double corporate profits in 2001 when Bush took office.
But that forecast was low. By August the administration had raised their estimate of 2006 corporate profits by $166 billion. As a result taxes paid were $77 billion higher than the White House had forecast back in January. What’s good for corporate America is good for the rest of the country, right? Well, not necessarily.
In January the White House had predicted individual income from wages and salaries in 2006 would total $6.1 trillion. By August they had shaved the forecast back $70 billion. As the economy expanded, corporations were making more than expected and workers were making far less.
As the Labor Department’s weekly earnings data so clearly demonstrates, in recent years the benefits of increased worker productivity are not being passed to the workers themselves. For the first time since the 1920s, nearly all of growth in worker productivity is going directly to employers instead.
The great anomaly in these budget numbers is that despite the decline in total wages and salaries, individual income taxes were higher than the administration projected in January. Again, the Collender factor probably plays a role. In January, the administration deliberately understated revenue collection across the board so as to create the appearance of a budgetary turn-around just before the election.
But there is probably something else going on here—the growing inequality in personal income. High income individuals are making more money and getting a dramatically larger share of a shrinking pie. High income individuals also happen to be high tax bracket individuals, which means higher-than-projected tax collections from lower-than-projected income.
That may make the budget look better for a while. In fact it would be in the short term interest of budget deficit reduction if all income went to those in the 39.6% bracket, but at some point as we move toward an increasingly higher concentration of income, our society and our economy will lose stability. The question we must all ponder is how far into the future is that day.