During the 2000 presidential campaign, George W. Bush focused on
a five-point program: tax cuts, education spending, military spending,
revision of entitlement programs (Medicare and Social Security)
and federal funding of faith-based social programs. On February
27, our so-called "MBA president" presented the details of his cornerstone
initiative--the tax cut plan. As a fellow MBA, and someone who has
prepared many budgets and plans, I find his proposals to be deeply
Bush's big numbers don't hold up. He says the tax cut will cost
$1.6 trillion over 10 years. However, the plan makes the tax cut
retroactive to January 1 of this year, and some of the funds previously
allocated to pay down the national debt are instead used for the
tax cut program. Therefore, $400 billion in additional interest
and tax cuts would accrue over the 10 years of the plan.
Further, while the tax cut would greatly benefit the richest 1
percent of the population (which would get about 43 percent of the
benefit), most of this group would be thrown into the "alternative
minimum tax" (AMT) category, part of the tax code designed to keep
this group from using loopholes to avoid paying taxes altogether.
Thus, unless the AMT portions of the tax code were to be revised,
this group would pay approximately the same taxes as they do now.
Revising the AMT to ensure that the richest 1 percent would keep
their tax cut, would cost an additional $400 billion. Thus the realistic
cost of the Bush tax cut plan would probably be $2.4 trillion--50
percent more than advertised.
Bush says that the tax cut will come out of an estimated $5.6 trillion
surplus developed over 10 years. Modern businesses seldom forecast
budget numbers beyond three years and almost never beyond five years.
The problem with forecasting on a 10-year basis is that inaccuracy
is inevitable--in this case, the result will be massive deficits,
as happened in the Reagan era.
Even if the $5.6 trillion surplus were to hold up, that surplus
minus the necessary Social Security and Medicare payments doesn't
leave enough in the budget for forecasted growth in domestic spending.
$5.6 trillion minus $2.4 trillion for a tax cut expense leaves $3.2
trillion. This amount less $3 trillion for Social Security and Medicare
results in $200 billion for all growth in domestic spending over
the 10-year tax cut period. This is 20 percent of the $1 trillion
that Bush claims to have set aside for contingencies and far less
than the 4 percent annual growth he projects.
Finally, the budget for the first year doesn't make sense. A detailed
budget has not been developed--in its place is a flimsy document
with comments such as "the final distribution of offsets has yet
to be determined." (An "offset" is an unknown spending cut.) Since
we don't know what these cuts are, we can't determine their consequences.
However, we can make educated guesses about unspecified budget
increases for fiscal year 2002, based upon two well-established
Bush priorities: education and defense. Education is up 11.5 percent--$4.6
billion more than this year. Rep.
George Miller (D-California) suggests that the final number
will be considerably higher. For example, fully funding Head Start
would take an additional $3.3 billion per year.
Defense gets a 4.8 percent increase--to
$14.2 billion, of which $5.7 billion goes to military pay raises.
Since Defense Secretary Donald Rumsfeld is conducting a review of
the current weapons systems, it is likely that later in the year
more money will be requested to "modernize" them. Also, it is certain
that Bush will ask Congress for money to pursue the National Missile
If our "MBA president" were a CEO of a large business and proposed
across-the-board pay raises for the employees (with the executives
getting the lion's share), the directors and the stockholders would
ask a basic question: How would the proposal affect future profitability
and this year's plan and budget? If CEO Bush could not come up with
a reasonable answer, he would be fired. If only we had such a choice.
As always, I look forward to hearing from you at firstname.lastname@example.org.