,,Does The President's 2005 Budget Really Cut The Deficit In Half?

Does The President's 2005 Budget Really Cut The Deficit In Half?


Publication Date: February 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): John Springer; Joel Friedman; Richard Kogan

Research Area: Banking and finance

Keywords: Fiscal future; Economic projections; Federal budget

Type: Report


The President’s fiscal year 2005 budget claims to cut the deficit by more than half both as a share of the economy over the next five years, from 4.5 percent of GDP in 2004 to 1.6 percent in 2009, and in dollar terms, from $521 billion in 2004 to $237 billion in 2009. But the President’s budget meets this goal only on paper. It omits a series of very likely or inevitable costs in taxes, defense spending, and other areas. When these missing costs — which likely total at least $160 billion in 2009 — are added in, the deficit for 2009 would be about $400 billion, or 2.8 percent of GDP, significantly above the Administration’s self-constructed target.

Specifically, the budget omits the costs of extending relief from the mushrooming Alternative Minimum Tax after 2005, the costs of extending a series of very popular tax breaks, and the costs of fighting terrorism internationally after September 30, 2004. It also fails to reflect the full costs of the Administration’s own “Future Year Defense Plan.”

Furthermore, these estimates of omitted costs do not include any adjustment for non-defense discretionary spending, which the budget shows as being lower in 2009 than in 2005, even before adjusting for inflation. History shows that such sustained discretionary spending restraint is highly unlikely to be imposed, given the popularity of many of the affected programs, including education, child care, and health research programs, and the Administration’s intention to increase spending for homeland security and international affairs programs. If non-defense discretionary spending were to grow by the rate of inflation and population growth starting in 2006, a more realistic assumption, the deficit in 2009 would be $35 billion higher than the figures we show above — or, when combined with the other omitted costs, about $200 billion more than the budget shows.