Last month, we discussed how beneath the surface, things may be actually worse than they appear. (Sometimes, There is No Pony). Not just from a consumer or macro-economic view, but specifically, as it relates to the Federal Budget Deficit.
In particular, we noted that:
The Federal Deficit, already booming thanks to the unencumbered profligacy of single party rule, now looks to soar above half a trillion dollars for 2005; And the budget for 2006 is widely expected to be even worse.
The War in Iraq, and all the costs associated thereto, has not gone away. Our March 2003 prediction for a final tab of a trillion dollars is looking increasingly prescient. Katrina may have blown War coverage off the front pages, but the financial burdens of this endeavor still remains a heavy one.
(Speaking of which) Off Balance Sheet funding: Since we’re discussing these, let me remind you that a significant chunk of Federal spending is so far “Off Balance Sheet” that it would make the CFO of Enron blush. Its not just the war in Iraq funded via special legislation; The other major expense is FEMA. This “Emergency” spending on an ad hoc basis makes the deficit appear smaller than it really is.
The Sunday NYT picks up on the same theme today. In an article titled "Emergency Spending as a Way of Life," it discusses the way Emergency Funding is being abused to make the Deficit appear smaller, even as it gets increasingly larger.
Here’s the Ubiq-cerpt:™
"The problem facing Mr. Bush and the Republican-controlled Congress is not the cost of Katrina itself. The problem is that, even before Katrina, Congress and the White House had lost their grip on the budget.
In the last few years, huge chunks of the federal budget have been channeled through emergency supplemental bills. Part of that money was for natural disasters, but a much bigger part of it was for the wars in Iraq and Afghanistan and counterterrorism efforts from Uzbekistan to Africa. The budget is also packed with fiscal time bombs – Medicare prescription benefits, tax cuts and health care costs for veterans – that are set to explode in the next few years.
In theory, emergency spending bills are for one-time, unforeseeable calamities. In practice, Mr. Bush has financed the entire war in Iraq, as well as the war in Afghanistan, with emergency supplemental requests that totaled $248 billion over the last three years. With no sign yet of a troop reduction in Iraq, the costs are likely to exceed $80 billion in 2006.
Emergency spending on natural disasters has shot up as well. Though no one would have budgeted for a calamity like Katrina, many budget experts have long called for a "rainy day fund" to cover at least some of the calamities that will occur. . .
Permanently extending all of Mr. Bush’s tax cuts from 2001 and 2003, a top Republican goal, would cost about $1.4 trillion over the next 10 years, plus interest.
On top of that is the cost of fixing the alternative minimum tax, which was intended to prevent rich people from taking too much advantage of tax deductions. Because the alternative tax is not adjusted for inflation, it ensnares millions of additional families every year.
Mr. Bush had said he would deal with the problem this year through a sweeping overhaul of the tax code. But tax reform has been delayed until at least next year, and many Republican lawmakers simply want to abolish the alternative minimum tax without making up for lost revenue.
That would cost about $30 billion just for next year and as much as $1 trillion over the next 10 years, according to estimates by the nonpartisan Joint Committee on Taxation."
There you have it — funding by off-balance sheet methods.
Who wants to guess when the Federal Budget will again be throwing off a surplus?
I’ll start: 2018.
Emergency Spending as a Way of Life
EDMUND L. ANDREWS
NYT, October 2, 2005