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After presiding over one of the largest spending sprees in American history-- including the creation of a multi-trillion dollar new unfunded Medicare prescription drug entitlement-- the Bush Administration is now proposing a balanced budget by 2012. I'm checking my calendar here-- yes, that's 2012, the last year of the next President's first term. It's like a bad headline straight from TheOnion.com.
First, a lesson in economics. Unless you are a liberal looking for an excuse to raise taxes, the current budget deficit doesn't really matter. It's the overall size of government spending that matters.Ã‚Â It is overall government spending that sucks resources from the economyÃ¢â‚¬â„¢s productive sector and transfers power from you and me to Washington, D.C.Ã‚Â President Bush should call for reducing the size of the federal government to 18.5 percent of GDP, a return to the relatively prudent fiscal years of the Clinton Administration. Spending is well over 20 percent of GDP today, and growing fast. Talking about short term budget deficits instead of overall spending levels is bad policy and it walks us right into the liberal-PAYGO-deficit-hawk-let's-raise-taxes trap.
Second, budget and economic growth forecasts to 2012 aren't reliable. And even the budget deficit numbers themselves are pretty fraudulent-- Congressional accounting standards would be criminal in the private sector. So the whole process of a five-year budget plan is silly. Federal budgets should be annual, and should operate off of the previous year's spending as a fixed baseline. Everything proposed beyond fiscal 2008 is mostly clutter and spin, the purpose of which is to distract and hide the failure to control spending in the current year.
Look, the Bush tax cuts clearly benefited and continue to benefit the economy. We've brought in record levels of new revenues to the federal government. But instead of focusing on extending and making the Bush 2001 and 2003 tax cuts permanent, I'm really concerned about the new Congressional obsession with PAYGO and budget deficits. Of course, the term "balanced budget" polls really well, so I'm hoping this is a political strategy to end-run the Blue Dog Democrats by taking "balanced budget" off the table ("hey, we have a balanced budget plan, too") and letting the GOP get back to defending pro-growth tax policy. Because, proposing a balanced budget in 2012 isn't a serious budget strategy and it has plenty of downside. Far better would be to engage in a nasty tactical fight over fiscal 2008 spending that would involve lots of Presidential vetoes of appropriations bills.