Dems, GOP Engage in Fairy-Tale Budgeting

Dems, GOP Engage in Fairy-Tale Budgeting

By Jack Kelly - March 24, 2013

The farthest known galaxy is about 13.3 billion light years away. But MACS0647-JD may be closer to Earth than Democrats and Republicans are to each other on taxes, spending and debt -- and that either is to reality.

Last week House Republicans presented their proposed budget for the 2014 fiscal year, which begins Oct. 1. Senate Democrats (for the first time in four years) offered a budget, too.

The Congressional Budget Act requires the Congressional Budget Office to project federal spending and tax revenues 10 years into the future. This lets lawmakers and staff try their hand at writing fiction.

The difference between a fairy tale and the fifth year of the Five Year Defense Plan, for instance, is that there is a moral to a fairy tale, which is what we used to say when I worked in the Pentagon because projections for how much money the Defense Department would have to spend five years hence always proved fanciful. There are so many variables which can vary so much that no mere mortal can do more than make a SWAG (Scientific Wild Ass Guess) about what revenues will appear so far in the future.

A SWAG isn't worth much even if the mortals making it are smart and honest, dubious assumptions to make about politicians.

The plausibility of a SWAG depends on its assumptions. By far the most important in estimating tax revenue is the rate of economic growth.

From 1948 through 2012, the gross domestic product grew at an average annual rate of 3.22 percent. GDP grew at an average rate of 1.4 percent during President Barack Obama's first term, 2.18 percent last year.

The SWAG of the nonpartisan CBO staff is that through fiscal year 2023, GDP will grow at a real (adjusted for inflation) average annual rate of 2.88 percent.

Pollyanna and Dr. Pangloss must be CBO analysts. Only 12 times in the last 65 years -- and not since 1984 -- has GDP ever grown that much or more in a single year. In a paper in January, CBO said its forecasts "have deviated from actual growth by roughly 1.25 percentage points."

Republicans say they can balance the budget in 10 years without raising taxes because they plan to spend $5.7 trillion less over the decade than CBO forecasts would otherwise be spent if no changes are made in current economic policies. These savings can be achieved if Obamacare is repealed and Medicare, Medicaid and the income tax are reformed, estimates the author of the GOP plan, Rep. Paul Ryan, R-Wis.

But the GOP budget wouldn't actually reduce spending, even though the federal government spends twice as much today as it did in fiscal year 2000. It assumes the government will spend $1.2 trillion more in 2023 than it spends now. The increase alone is more than the entire government spent in 1989.

Senate Democrats plan to spend $1 trillion more than the Republicans. Democrats would raise taxes ($975 billion, according to their calculations, $1.5 trillion by the GOP's), but deficits in their budget wouldn't fall below $407 billion.

Republicans and Democrats are required by law to use CBO forecasts to build their budgets. If current CBO estimates of GDP growth are off as much as they've been in the past, GOP plans to balance the budget by FY 2023 are a pipe dream.

If Rep. Ryan's other assumptions come to pass, the economy would get a boost. But it's safer to bet the Jacksonville Jaguars will win the Super Bowl than that Democrats will agree to repeal Obamacare and cut income tax rates.

Because a budget with annual deficits of more than $400 billion isn't fiscally responsible to start with, overestimating revenues by perhaps 40 percent is far more devastating to Democrats. Actual deficits would be much higher.

Other faulty assumptions Democrats make then would cascade. (They assume -- preposterously -- that neither mounting debt nor tax hikes would exert drag on the economy).

Both budgets are fairy tales. But there's a big difference.

To get their numbers, Democrats rely on pixie dust, magic beans and chicanery.

It is chiefly their assumption Democrats would act responsibly that makes the Republican budget a fairy tale.

Jack Kelly is a columnist for the Pittsburgh Post-Gazette and The Blade of Toledo, Ohio.

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