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Thursday, July 08, 2004

What Happened to the Surplus?

January 2001. Bush takes office. The 10-year surplus is estimated at $5.0 trillion, but we now know this figure was an overestimate. The falling stock market and "technical" problems with the Congressional Budget Office projections of tax revenue have since reduced the amount to $2.4 trillion.

June 2001. Almost 1.5 trillion in tax cuts enacted.

August 2001 Radio Address. Bush remains optimistic about the budget:

A new budget report, released this past week, shows that despite the economic slowdown that began in the third quarter of last year, the federal budget is strong, healthy and in balance. In fact, the 2002 budget surplus will be the second biggest surplus in American history.

The report also shows we are funding our nation's priorities, meeting our commitments to Social Security and Medicare, reducing taxes and still retiring record amounts of debt. This is a great achievement, and it happened because Congress worked with me this spring to agree to a responsible total level of spending.

September 11, 2001. The terrorist attacks and subsequent war in Afghanistan "change everything," but have relatively little effect on the budget. The lingering recession ultimately reduces the surplus by $700 billion. The 10-year surplus is down to just $200 billion.

January 2002. State of the Union Address. Bush promises that deficits will be temporary:
Once we have funded our national security and our homeland security, the final great priority of my budget is economic security for the American people. To achieve these great national objectives -- to win the war, protect the homeland, and revitalize our economy -- our budget will run a deficit that will be small and short-term, so long as Congress restrains spending and acts in a fiscally responsible manner.

March 2003. War in Iraq begins and the defense budget begins to grow quickly. Through 2011, defense and homeland security spending are expected to increase by $1.8 trillion. The surplus has turned into a $1.6 trillion deficit.

May 2003. Despite the war and the deficit, Bush persuades Congress to enact more tax cuts. The cuts are officially projected to cost $350 billion if they expire as scheduled from 2004 to 2008. But Bush soon calls for them to be extended, raising their cost to about $1 trillion.

January 2004. State of the Union Address. Bush calls for making the 2001 and 2003 tax cuts permanent. If enacted, all the tax cuts will total $2.7 trillion. The administration also supports "alternative minimum tax relief" which would cost another $700 billion. The tax cuts, actual and proposed, are now $1 trillion larger than the original $2.4 trillion surplus.

Bush has long since stopped speaking of surpluses or even temporary deficits:

In two weeks, I will send you a budget that funds the war, protects the homeland, and meets important domestic needs, while limiting the growth in discretionary spending to less than 4 percent. This will require that Congress focus on priorities, cut wasteful spending, and be wise with the people's money. By doing so, we can cut the deficit in half over the next five years.

But Bush's promise of reducing the deficit ignores $400 billion in future military costs and the $1 trillion plus cost of his proposal to partially privatize social security. It also assumes draconian cuts in domestic programs, to begin after the election.

What Happened to the Surplus?

10-year surplus in 2001: +5.0 trillion

Falling stock market and
"technical" errors -2.6
Recession & economy -0.7
Tax cuts -3.4
Defense & Homeland Sec. -1.8
Rx drugs & entitlements -0.6
Other domestic -0.2

10-year deficit -4.4 trillion

Source: CBPP 2003 [153K pdf], Table 4.

Note: all figures in this post refer to the 10-year period 2002-2011 and are from either CBPP 2003 [153K pdf] or CBPP 2001 [88K pdf].

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