Imagine learning that you're about to receive a raise at work. Now, imagine learning at the same time that your spouse went on a spending spree and maxed out all your credit cards.
This scenario is a rough equivalent to what is happening right now with the federal budget. Increasing federal revenues are causing the deficit to fall, but it's hard to get excited about that when promised spending increases threaten to break the bank in the future.
First, the good news: The White House Office of Management and Budget reported this month that the deficit for the first nine months of this fiscal year was $251 billion. That sounds like a lot, but it was $76 billion lower than the $327 billion deficit over the first nine months of the last fiscal year. The government projects that the deficit for the full fiscal year will be $333 billion, down from $412 billion last year.
The good deficit news is coming completely from one side of the ledger-revenues. Spending keeps on increasing, but tax payments are increasing even faster, up over 14 percent this year.
This may sound strange to those who remember Democratic predictions during the debate over President Bush's tax cuts. Democrats insisted that President Bush's tax cuts were an irresponsible throwaway to the rich that would cause the deficit to explode, creating a good political issue for them: "The deficit is going to be a symbol of [the GOP's] credibility problem, and the budget is going to be the document we use," said U.S. Rep. Rahm Emanuel (D-Ill.).
The actual numbers have turned out very different and seem to vindicate the Laffer curve, a highly controversial theory expounded by supply-side economist Arthur Laffer. The Laffer curve holds that cutting tax rates will increase federal revenue by encouraging work and investment and making the economy grow.
Liberals despise and mock the Laffer curve, often dismissing supply-side theory as a "religion," apparently the worst term of contempt they can imagine. But something is causing revenues to increase, and President Bush's tax cuts are, at the very least, not getting in the way. Liberals who said the Bush tax cuts would bust the budget were simply wrong.
Future budgets, however, don't look so rosy, and that's where the bad news begins. The United States has an unfunded liability (the amount the government has promised to spend for future generations) of $68.1 trillion-for Medicare alone. President Bush is directly responsible for about 10 percent of that liability, which is what his 2003 prescription drug benefit is projected to cost. And, like the presidents before him, President Bush has done nothing to lower the future tab for Medicare. (The unfunded liabilities for Social Security and Medicaid will also add trillions to the bill, but Medicare is the biggest problem.)
The Laffer curve won't solve a problem this large, and today's children and their children will face either massive deficits or massive tax hikes if America even comes close to keeping the promises it has made to future Medicare recipients.
So give President Bush an "A" when it comes to taxes, but don't forget that he still has a glaring "F" on his report card for spending.