Our Fiscal Future – as Portrayed by the OMB
AB reader ilsm points us to a set of White House graphs on employment, GDP growth, and the budget. More on this after thanking Brad DeLong for commenting on a comment from Greg Mankiw on our fiscal future. Greg reminds us that we have to choose between reducing entitlement growth versus imposing taxes even higher than what we saw during the 1990’s. Brad is stunned that President Bush is still calling for tax cuts.
But let’s turn to those graphs. The first one shows the GDP growth rates since 2000 (more volatile than high) and projections that GDP growth will taper down to around 3.1% per year. And I thought these tax cuts will lead to rapid future growth according to the free lunch supply-side crowd! The next graph documents how weak employment growth has been since 2001. Well, that’s what the data shows but the titles of both charts talk about strong growth. As Brad might say – HUH?
The next chart shows projected growth in nominal tax revenues, which of course, is a misleading diagram (in real terms, relative to GDP, etc.). The fourth graph makes that infamous claim that Bush will lower the deficit in his second term comparing this bogus projection to one of those weird averages that the Bush crowd is known for.
But ilsm wants us to look at the last graph, which I have to admit is truly fascinating. Its title is “Current Trends Are Not Sustainable”, which is consistent with what Greg said. It also provides taxes as share of GDP from 1970 to today and projections through 2070. Note the rise in the share of taxes relative to GDP during the Clinton years and the dip after 2000. The chart does not say – but I suspect its projections are based on the assumption that we ignore President Bush’s calls for permanent tax cuts. Finally, the chart breaks out Federal spending among interest payments (ilsm wants us to notice how they grow over time), mandatory spending, and discretionary spending. Am I reading this graph correctly? The projected increase in spending as a share of GDP is not from a projected increase in discretionary spending but from a projected increase in mandatory spending. So why are so many rightwingers concerned about controlling discretionary spending?
To be fair, I have never paid a lot of attention to this arbitrary distinction between discretionary v. mandatory. Part of what is going on in this graph is that the Social Security surpluses over the next decade are masking the General Fund deficits. These Social Security surpluses, however, are only pre-funding the retirement benefits for the baby boom generation. The other part of what is going on here represents the rise in government funded prescription drug benefits that President Bush brags about one day as he brags about giving us a tax cut the next. Credit to Greg Mankiw for calling out the dishonesty of this fiscal pandering.
Update: Looking at the actual GDP growth figures for 2001 through 2005 as well as the OMB projections for the rest of the decade, it seems that our average annual growth rate over the past 5 years was only 2.55% and will be only 2.9% for the decade if actual growth follows these projections. Think about it. From 1947 to 1980, average annual growth was 3.5% and for the 8 years that Clinton was President, average annual growth was 3.7%. During the Reagan-Bush41 years, average annual growth was only 3.0% and according to the OMB, average annual growth for this decade will be less than that. So much for that supply-side mythology that President Bush keeps muttering as if it were the gospel.