‘Ledgerdemain’ Has Always Been Bad, But It’s Getting Worse

Posted March 15, 2005 at 3:59pm

It’s budget season, a time when every student of Congress and the budget process turns into a hard-bitten cynic. Over the years, every budget trick the human mind can devise has been used to make outlays look smaller and revenues look larger; every accounting trick imaginable has been used to shove costs onto future budgets, denying their impact as long as possible. Budget chicanery — I like to call it “ledgerdemain” — has been a thoroughly bipartisan practice, depending on who is in power. [IMGCAP(1)]

This year, though, even the hard-bitten cynic has to be awestruck by the level of open deceit. The most ridiculous element is the deliberate omission of next year’s costs for Iraq and Afghanistan. It would be one thing if we had no clue what the costs might be, or what we would allocate for them, for months. But within days after the budget release, the request for about $80 billion conveniently came down the pike — none of it included in the budget outlays nor any of the projections of deficits ahead. Nor, of course, is there a dime included for the region in the longer-term projections for the budget. Maybe they will go to zero or a negligible amount in 2007, 2008 and beyond. Sure they will.

Next comes the Alternative Minimum Tax. President Bush’s budget punts the issue one year down the road and does nothing more, meaning that 19 million tax returns will be subject to the AMT in 2006, up from 4 million this year. The cost of fixing it? A half-trillion dollars or more.

Third, the budget effectively assumes zero real growth for discretionary spending. With defense clearly destined to grow at a handsome rate, this obviously means major cuts in real terms for discretionary domestic spending. The president’s budget, to show he means business in this area, targets more than 150 programs large and small for elimination. But most don’t pass the laugh test.

Fourth, the budget takes a few whacks, commendable on the surface, at entitlement programs: roughly $45 billion out of Medicaid over 10 years, and nearly $8 billion from agriculture subsidies. There is no mention of the proposed Social Security reforms, and not a penny set aside for the transition costs if the president’s plan is passed — a change that would remove trillions of dollars of federal revenues from the budget over two decades before anything is put back in to compensate.

The Medicaid savings, for their part, do not come from serious reform of the Medicaid program but rather by whacking the states and governors, taking back money the states are presumably siphoning off via loopholes in federal regulations. The farm-subsidy cuts, applauded by liberals and fiscal conservatives because they hit the most affluent farmers, have already been declared sacrosanct by key Republicans.

The governors hit hard on the Medicaid side include those in California, New York and Massachusetts — let’s see, that’s Republicans Arnold Schwarzenegger, George Pataki and Mitt Romney. They and their colleagues, in a rare display of bipartisanship, are drawing the line against the feds. The federal share of Medicaid may decline, but it will be by a fraction of the $45 billion. The fraction taken from farm subsidies will be even smaller.

But let’s say the administration managed to get all of its proposed entitlement cutbacks. The Congressional Budget Office looked at the ancillary costs of the Medicaid cuts, via earned-income and child tax credits, as well as refundable health insurance credits, and concluded that instead of saving $70 billion on the mandatory spending side, the president’s proposals would actually cost $16 billion over 10 years.

The student of budgeting, understanding the nature of politics, has to tolerate a lot of this kind of behavior. But if anything, honest budgeting is even more important now than it has been in a long time. We have a great problem ahead with the coming explosion in entitlement spending, driven by the baby boomers beginning to qualify for Social Security and Medicare and the growth in the number of Americans living past 85.

By 2040, unless serious efforts are made to reduce the growth path of the big three entitlements, budget projections — reasonable, conservative ones — indicate that they will eventually account for 80 percent of the budget and 18 percent or more of the gross domestic product. That would push federal spending, almost certainly, to 25 percent or even 27 percent of the GDP. Long before 2040, by almost any standard, we will have serious deficit problems, growing as outlays balloon.

The Social Security debate is hardly touching the gist of the problem — and instead of acting as a first step toward an honest bipartisan effort, it is poisoning the waters to make even less likely serious change in Medicare and Medicaid. Remember, the Medicare and Medicaid liabilities are several times the magnitude of Social Security.

I believe the two Budget Committee chairmen, Sen. Judd Gregg (R-N.H.) and Rep. Jim Nussle (R-Iowa), genuinely want budget restraint. But the level of budget restraint we will get is destined to leave us woefully short of what is needed for real fiscal discipline. Under these circumstances, pushing for more and more tax cuts makes no sense. The only proven way to bring budget restraint is to restore the pay-as-you-go rules. Anyone who resists PAYGO is not serious about fiscal discipline. And it’s high time to get serious.

Norman Ornstein is a resident scholar at the American Enterprise Institute.