The fiscal gap is an awful way to measure and think about the budget's long-term fiscal imbalance.

I don't know why, but GAO likes it. They gave a rundown of what the fiscal gap is in a report released on Friday.

The fiscal gap is the amount of spending reduction or tax increases needed to keep debt as a share of gross domestic product (GDP) at or below today's ratio. Another way to say this is that the fiscal gap is the amount of change needed to prevent the kind of debt explosion implicit in figure 3.

Is that clear? Essentially, it's the money that GAO thinks we'll have to pony up to fulfill the federal government's obligations in current law.

GAO then goes on to say how much the fiscal gap is.

For GAO's "baseline extended simulation, closing the fiscal gap would require cuts or tax increases equal to 3.6 percent of the entire economy each year over the next 75 years, or a total of $26 trillion in present value terms.

That seems scary- $26 trillion is a lot of money that we'll essentially be getting nothing for. I mean, it's only to maintain current levels of services.

But there's one key and unmentioned technical objection: it assumes that we can't make government more efficient, that there's no way to get a bigger bang for our buck.

Pretty pessimistic, isn't it? Especially when the rest of the industrialized world gets its health care much more efficiently than we do, and when the main cause of the fiscal gap is rising health care prices.

For the life of me I can't figure out why this simple fact is excluded from the report. Are these scare-tactics a cynical attempt to cut government programs unnecessarily? Probably not. I think it's more that they just don't care to frame budget issues in anything but basic terms (spending must go up, revenues must go down, etc.), but it does make you wonder.

Check out Adam and Craig on TomPaine.com today -- "No New Taxes? Don't Read His Lips."

Glenn Hubbard, former head of the President's Counicl of Economic Advisors, said some ridiculous things on NPR's marketplace yesterday about long-term fiscal problems and the President's budget. Among the many opinions passed as facts, this one merits the most attention:

The president's budget poses a challenging question: Can we restore fiscal discipline without damaging economic growth with higher taxes?...The answer is yes.

Glenn's right. Yes, of course, we could- but that's because higher taxes (i.e. if we don't renew the Bush tax cuts) won't damage the economy in the long run! Even the economists at the Bush Treasury Department agree!

Hubbard also peddles the fiction that higher taxes -categorically- slow down growth. But what you tax is more important than how much you tax. European economies, for example, have had high growth rates and high taxes- they just make sure that they tax people the right way (See Jason Furman's testimony to the Senate Budget Committee, Page 9).

And finally, Hubbard drops the standard conservative line about long-term budget issues: it's a spending problem.

It's time for an honest fiscal conversation. The challenge is spending — and entitlement spending in particular.

But it is not a challenge if higher spending, financed by higher taxes, doesn't damage the economy. Higher spending is only a problem when it's on the wrong thing, or when it's financed the wrong way- i.e. by growth-reducing taxes or excessive deficit spending. The challenge is to figure out what to buy, and how to pay for it, based on our priorities and sound economics.

Glenn Hubbard disagrees. He thinks there's something inherently wrong with government spending. That's his opinion, and it's wrong.

A comment on testimony given to the Senate Budget Committee by Jason Furman, the leader of the center-left Hamilton Project and a scholar at the CBPP. The testimony concerns the "fiscal gap," the hot new phrase for what's typically called the long-term structural imbalance in the federal budget. His testimony is interesting and largely constructive.

But it's more notable for its demonstration of budget wonkery's biggest blind spot: health care economics.

Furman says rising health care costs are primarily responsible for the "fiscal gap." Yet all he says on the overall issue is this:

Unlike Social Security reform, there is no place to find readily quantifiable menus of options for health reform. The choices facing individuals, companies, and the government are not nearly as simple or well understood.

That's it? On the most important problem?

And it may be that the options for health care reform are more complex and less understood. But they are sufficiently understood. There's McKinsey & Company's landmark study on why our health care system is so overpriced (though in fairness I think it was released after Furman gave his testimony). There's a fascinating study of the Veteran's Administration's lean, effective health care system. There's all the work that Gerard Anderson has done on cross-national comparisons.

And there's the fact that the rest of the industrialized world knows how to contain health care costs while providing quality care.

The problem isn't that the issue isn't understood; it's that budget wonks don't care to understand it. If we want to close the "fiscal gap," we should figure out how to fix the health care system.

OMB Watch is pleased to annouce we have just released a new version of FedSpending.org with updated data, new features, and improved navigation. The new site is now live - see it yourself at www.fedspending.org.

OMB Watch issued a press release that describes the updates and improvments made to the site, and you can learn and see more about FedSpending v2.0 in the About This Site section, or by exploring the site yourself.

We welcome your feedback, comments, and questions about the new website, so please go to the Contact section of FedSpending.org and send us your thoughts.

The Bush budget proposal assumed the repeal of the estate tax. Sen. Bernie Sanders's office juxtaposed what certain families would get from a repealed estate tax with assorted proposed cuts to social programs. Matt Taibbi of Rolling Stone summed up the comparisons thusly:

Sanders's office came up with some interesting numbers here. If the Estate Tax were to be repealed completely, the estimated savings to just one family -- the Walton family, the heirs to the Wal-Mart fortune -- would be about $32.7 billion dollars over the next ten years.

The proposed reductions to Medicaid over the same time frame? $28 billion.

Or how about this: if the Estate Tax goes, the heirs to the Mars candy corporation -- some of the world's evilest scumbags, incidentally, routinely ripped by human rights organizations for trafficking in child labor to work cocoa farms in places like Cote D'Ivoire -- if the estate tax goes, those assholes will receive about $11.7 billion in tax breaks. That's more than three times the amount Bush wants to cut from the VA budget ($3.4 billion) over the same time period.

What's more, spending reductions are intended to pay for tax cuts like the repeal of the estate tax. Recall that the Congressional Budget Office projected surpluses by 2012, as the Bush budget did. Except that CBO did not get to surpluses by assuming massive spending cuts. The Bush budget did because it also had his tax cuts to pay for.

Tax cuts for the wealthy would make it necessary to slash Medicare and Medicaid. If that's not stealing from the poor and middle class to give to the rich, I don't know what is.

The President's budget has more than just perverse priorities. It redistributes wealth upwards, with real losses for most people and real gains for the people who need and deserve them least.

McKinsey, a nonpartisan consulting company, has answered my prayers and put out a comprehensive report on our overpriced, waste-ridden health care system. They even estimate tremendous savings from a national health care system. Steven Pearlstein makes the key point (emph. mine):

Proponents of a government-run "single-payer" system will certainly home in on the $84 billion a year that McKinsey found that Americans spend to administer the private sector portion of its health system -- a cost that national health plans largely avoid. But as long as Americans continue to reject a government-run health system, a private system will require something close to the $30 billion a year in after-tax profits earned by health insurance companies. What may not be necessary, McKinsey suggests, is the $32 billion that the industry spends each year on marketing and figuring out the premium for each individual or group customer in each state. Insurance-market reform could eliminate much of that expense.

Of course, any effort to reduce these excess costs faces determined opposition from well-financed lobbies, which is why many reformers prefer to focus on the goal of extending coverage to the 47 million Americans who don't have health insurance. But doing the one without the other, the McKinsey researchers warn, would be economic folly. Offering universal coverage without reining in costs would add another $77 billion each year in unnecessary and unproductive health spending.

You read right: a single-payer insurance system could save the country $84 billion a year.

But Pearlstein's other example -that universal health insurance could add more waste to the system- shows that insurance is just one piece of the puzzle. In total, the report found that we overpay by $477 billion each year- or $1,645 per person. We overpay doctors, nurses, and other professionals. We pay too much for prescription drugs. Everyone in the health care industry makes tremendous profits. And we have to deal with vast inefficiencies in health care operations.

That's all money we could save if the government responds.

For more commentary, see Tapped and Gooznews.

Vice President Cheney, speaking to the National Association of Manufacturers yesterday:

By now it's time for even the skeptics to admit that a lower federal tax burden is a powerful driver of investment, growth, and new jobs for American workers. And that increased economic activity, in turn, generates revenue for the federal government.

Ummm...you mean even the "skeptics" at your very own Treasury Department? Even they say that permanent tax cuts will make the economy smaller and reduce revenues.

These people will keep peddling this snake-oil unless they are persistently confronted with the evidence. Why isn't Congress doing more to counter this nonsense? The facts are on its side.

The President's supporters have been contradicting the findings of a 2006 Department of the Treasury study while defending the Bush tax cuts. Check out this new OMB Watch fact sheet for the story.

The Bush budget plays games with funding for veteran's health care. The Washington Post reports:

WASHINGTON -- The Bush administration's budget assumes cuts to funding for veterans' health care two years from now _ even as badly wounded troops returning from Iraq could overwhelm the system.

Bush is using the cuts, critics say, to help fulfill his pledge to balance the budget by 2012. But even administration allies say the numbers are not real and are being used to make the overall budget picture look better.

An interesting editorial in the NYT today outlines a plan that, if implemented, would seem to have a good chance of eliminating the deficit.

Three quick complaints:

• The authors are silent on the Bush tax cuts, so I assume they want them extended.
• They are pretty much silent on the estate tax, although the make an oblique reference to only taxing estates bigger than $7 million- a huge cut compared to recent levels.
• They have a shallow understanding of compromise. They propose that half of all deficit reduction come from spending restraint and half come from tax increases. They do not explain why a meet-each-other-half-way prescription lines up with public spending and tax priorities. Regardless, many of these rather severe spending cuts seem out of touch with public priorities.

Take a look for yourself.

WITH the new Democratic majority in Congress, President Bush finally talking about fiscal responsibility and the 2008 primary season about to begin, finding common ground between Democrats and Republicans on budget issues could not be more important. We are borrowing large sums from foreigners, leaving a legacy of debt, paying more than $1,600 per family in taxes just to cover the interest on the debt, and setting aside nothing to deal with future contingencies or investments.

True, last year's deficit of $248 billion, at 1.9 percent of gross domestic product, was not large by historical standards, and next year's may be even smaller. But a failure to deal with deficits and overall debt sends the message that we have no plan for the sea of red ink that will engulf the nation when the baby boomers begin to retire next year.

EJ Dionne's column on budget trade-offs and priorities is a good read. This president will defend tax cuts by any means necessary.

It was one of those moments when a public official gives away a larger truth by offering what seems to be a throwaway line.

Testifying this week on President Bush's budget, Treasury Secretary Henry M. Paulson Jr. suggested he would not mind a bit if the Democratic Congress added money to prevent cutbacks in coverage under the federal government's children's health insurance program.

"It just may be," Paulson said mildly, "that the Congress believes that that's something that should be funded at a higher level."

A note on a budget meme that needs to be done in.

The Washington Post:

Some of its approaches, particularly the effort to restrain the growth of Medicare through additional means-testing and cutting payments to providers, are commendable; they merit more serious consideration by Congress than they appear destined to receive.

The New York Times:

Sharp reductions are envisioned for Medicare, with cuts of $66 billion over five years, and Medicaid, down approximately $11 billion. Some of the Medicare proposals could serve as useful starting points for a debate on controlling costs through such steps as raising premiums for high-income beneficiaries.

Ok, let's consider this "means-testing" idea, whatever they mean. What does means-testing have to do with the primary cause of Medicare and Medicaid cost concerns? Nada, zilch, zippo. High prices are mostly making public and private health care so expensive in this country, and we have high prices because we don't have universal-ish health care insurance.

Means-testing programs would merely shift costs and only make the overall problem worse. It gives Medicare recipients an extra incentive to buy insurance on the private market and leave the public risk pool when they can. In fact, isn't that the reason why the NYT and so many others opposed -rightly- the Bush health care tax initiative? At least the WaPo is consistent in being wrong.

This is public policy 101 people. You don't need me to tell you to identify the cause of the problem first, and design the policy solution to address the cause. Leave the nice rich people alone and focus on the real problem.

Amid growing controversy about budget war costs in Iraq, Defense Secretary Robert Gates has reneged on the commitment he made to Buduget Committee chair Kent Conrad (D-ND) and ranking member Judd Gregg (R-NH) during his confirmation process that he would present the FY08 Defense budget to the Senate Budget Committee next week (something Donald Rumsfeld never did).

As we noted in FY2008 -- Mixed Budget Signals, the administration, presumably seeking to keep the enemy, as well as Congress guessing about its strategic intentions, has provided mere funding fragments in its FY 2008, totaling $200 billion through 2012.

Lacking Gates' assistance, Conrad requested and has now received projections from the Congressional Budget Office (CBO) of Iraq war costs over each of the next ten years. The CBO projections fill out the picture. Using the CBO's rule of thumb that 75-80 percent of its aggregate war-on-terroism projections reflect operations in Iraq, the CBO makes projections under two scenarios:

• under the first, the number of troops post-surge falls gradually over three years to 130,000 in 2008 and by 2010 there are 20,000 U.S. military personnel in Iraq. That would cost $416 billion over the 2008-2012 period -- meaning that the administration has under-budgeted for 2008-2012 Iraqi war costs by $216 billion
• under the second, the number of troops falls gradually from a post-surge figure of 155,000 in 2008 and thereafter until 55,000 troops remain in 2013. That would cost $555 billion over the 2008-2012 period -- meaning that the administration has under-budgeted for 2008-2012 Iraqi war costs by $355 billion

There goes the administration's projected $61 billion budget surplus for FY 2012, and then some.

We have showcased a number of omissions, deceptions, and exaggerations this week within the president's FY 08 budget proposal, but another fine point was uncovered this week as well that missed our notice. It concerns assumptions for how much revenues will grow over the next five years.

The Congresstional Budget Office, a nonpartisan office in the legislative branch, does projections and estimates for specific legislation moving through Congress, as well as larger, long-term economic and budget projections across the government. Recently, CBO released their Budget and Economic Outlook for the next ten years. In that report, they project revenues will grow 5.8 percent over the next five years.

The president's budget, however, projects revenue growth at 7 percent over the next five years. This translates into $425 billion in additional revenues than CBO believes will materialize over the five year period and a hefty $157 billion in FY 2012 alone - the very year the president expects his policies to yield a $61 billion government surplus. Even if revenues grow at a slightly lower rate, the president's surplus projections will disappear.

This is just yet another example of many instances of extremely wishful thinking in the president's proposal that allows him to state that his budget will balance the budget by 2012. That, and the fact that he is planning on raising taxes on the middle class.

An article in today's Wall Street Journal, On Deficit Cutting, Skeptics Abound remarks that the President's FY 2008 budget projections "still don't account for several big potential budget-busters, as budget analysts and Democratic critics were quick to note yesterday," making the point unflinchingly in this graph:

Inexplicably, however, the article closes with what appears to be a stray talking point from an administration official (perhaps dated January, 2005?):

To jump-start the debate over entitlements, Mr. Bush again is urging Congress to create new private accounts for future Social Security recipients.

End of discussion.

President Bush's FY 2008 budget proposal provides numerous projections calculated to prove the plausibility of his overall goal of eliminating the deficit budget by 2012 -- the only problem being the implausibility of the projections themselves. We have highlighted in our commentary on the budget and elsewhere some of the more conspicuously convenient calculations regarding war spending and AMT reform.

CBPP expands upon the latter point in a paper released today, and relates it to a more plausibile assumption -- the extension of Bush's 2001 and 2003 tax cuts -- arguing that

it is not plausible that AMT relief will be allowed to end after 2007 and ultimately affect more than 40 million taxpayers," but "if [the administration prefers to assume that] AMT relief is allowed to expire, the AMT will take back more than a quarter of the President's tax cuts by 2010."

For this reason, the paper concludes:

[A]ssuming that AMT relief expires yields an estimate of the President's proposed policy that is artificially low, as it excludes the cost of the one-fourth of the tax cuts that would be cancelled out by the AMT. To avoid underestimating the cost of making the President's tax cuts permanent, it is necessary to include the cost of AMT relief.

LA Times reports that the President left out another key expenditure: the cost of the troop increase in Iraq.

The Bush administration's $142-billion war budget for next year leaves out money for the planned troop buildup in Iraq, a strong indication that the Pentagon views the increase as a short-term tactic to stem the escalating violence in Baghdad.

But Defense officials could not provide assurances Monday that the troop level would fall back again by next year, and acknowledged they may be forced to return to Congress for more money to pay for the extra forces if sectarian conflict continues to rage.

The projection of a balanced budget in 2012 just isn't credible. The President's budget wouldn't balance the budget by 2012.

Check out these breakdowns of the President's budget:

• Center on Budget and Policy Priorities
• Center for American Progress
• National Priorities Project
• Coalition on Human Needs

OMB Watch has released a preliminary analysis of the President's FY 08 Budget request.

President's Budget Full of Cheap Rhetoric; Wrong Priorities
President Favors Tax Cuts for the Wealthy over Domestic Needs

Check back here for additional analyses and commentary on the budget as the week progresses.

President Bush's 2008 budget, to be released this morning, proposes to eliminate the deficit by 2012 with many spending cuts in various national health and well-being programs.

• $101.5 billion in cuts to Medicare and Medicaid over five years
• $223 million reduction in spending on the Children's Health Insurance Program, with cuts deep enough over five years to eliminate coverage for half of the children enrolled today
• $99 million savings by eliminating a childhood obesity prevention program
• $40 million cut in the Low-Income Home Energy Assistance Program, a program which helps people pay for their heating bills
• $9 million less for fighting cancer by reducing the National Cancer Institute's budget

Stay tuned for more of Bush's Big Budget Blow-out of '08

Based on the president's recent announcement of his plan to deploy an additional 21,000 troops to Iraq, CBO has released a report detailing the projected costs of such an escalation. CBO Director, Peter Orszag, predicts that the president's plan to increase troop levels could cost as much as $27 billion.

So far, the president has funded the wars in Iraq and Afghanistan through emergency, or supplemental, spending reqeusts to congress. Those requests have so far amounted to $503 billion. Since 2001, more than half of a trillion dollars has been allocated for war funding - the vast, vast majority of which has not been subject to normal budgetary procedures. Given that it is certain American forces will be deployed abroad for the next year (and probably the year after that), and given that military operations expenditures now have a five-history, budgeters can now make reasonable estimates of impending war expenditures.

There absolutely is no reason that when the president submits his budget to congress on Monday that it should not include costs for the wars in Iraq and Afghanistan. His refusal to to subject war funding to the normal budget process will not only surely stymie his efforts to balance the budget by 2012, but it will also hinder congress's ability to construct a meaningful budget that will help guide them in preparing for the long term fiscal challenges that begin in a few short years when the Baby Boomers begin retiring en masse. The president owes it to the nation to fully account for all fiscal events that he believes will come to pass.