Grasping Reality on TypePad, by Brad DeLong

Why should anybody pay for the New York Times?

Here's a real story on Bush's budget proposal--a paraphrased and compressed version of one of the newsletters that flows across my desk every day:

The Bush administration FY08 budget proposal is more honest than previous Bush efforts because it accounts for SOME war funding. It achieves paper balance in FY 2012, long after Bush is out of office, in a way that will not attract bipartisan support.

This year more than ever, the Bush budget proposal is a political document. Bush achieves paper budget balance in five years through highly optimistic revenue estimates, cuts to domestic programs with powerful lobbies, and reductions in Medicare spending. Even so, Bush found it difficult to put the budget in balance by 2012. Much proposed savings come from entitlement program cuts and unrealistic forecasts of war funding and of the AMT fix. Remember that similar cuts could not pass even when the GOP had a majority in both houses. Bush proposes cuts to discretionary spending but doesn't provide details.

The apparently-manageable budget deficit of around 2% of GDP masks future fiscal shortfalls since Social Security is still running a surplus which will diminish quickly as baby boomers start to retire. Also masked are the costs of the wars in Iraq and Afghanistan after 2008, and of continuing the AMT fix.

Here's a fake story--David Stout in the New YorK Times:

Bush Releases Budget Aimed to Erase Deficit - New York Times: President Bush sent his proposed $2.9 trillion budget for next year to Capitol Hill today, where it was immediately criticized by the Democrats who control both houses but are by no means all-powerful. The president's spending proposal, for the fiscal year that begins on Oct. 1, is the first he has submitted to a Democratic Congress and the last he will submit before the 2008 elections dominate political calendars and calculations. It calls for big increases in military spending, including the campaigns in Iraq and Afghanistan, and much more modest increases in most domestic spending.

Crucially, the budget package projects no spending on Iraq and Afghanistan after 2009. "There will be no timetables set," Mr. Bush said in a question-answer session after a Cabinet meeting this morning. "We don't want to send mixed signals to an enemy, or to a struggling democracy, or to our troops."

The president's budget also calls on lawmakers to make permanent the tax cuts Mr. Bush pushed through Congress earlier in his presidency, when the Senate and House were controlled by Republicans. And the document assumes that, even with spending on military and homeland security needs, the government will balance its books by 2012.

For the 2008 fiscal year, Mr. Bush foresees a $239 billion deficit, about $5 billion less than that projected for the current fiscal year. The $2.9 trillion compares with the roughly $2.78 trillion that the White House sees in total spending for the current fiscal year.

"Our economy is strong and growing," Mr. Bush said in an introduction. "Federal revenues are robust, and we have made significant progress in reducing the deficit" The president said his goal of achieving a balanced budget by 2012 reflects the priorities of battling terrorism, keeping the economy strong through low taxes and controlling spending while making federal programs more effective.

But Senator Harry Reid of Nevada, the Democratic majority leader, said the budget "uses deception to hide a massive increase in debt, and its priorities are disconnected from the needs of middle-class Americans."

The senator said Democrats still hoped to work with Republicans "to address the priorities of the American people in a fiscally responsible manner."

Senator Kent Conrad, the North Dakota Democrat who heads the Senate Budget Committee, was similarly dismissive. "The president's budget is filled with debt and deception, disconnected from reality and continues to move America in the wrong direction," Mr. Conrad told The Associated Press.

The top Republican on the budget panel, Senator Judd Gregg of New Hampshire, agreed that the budget as presented has little chance. "I don't think it has got a whole lot of legs," he told The A.P. "The White House is afraid of taxes, and the Democrats are afraid of controlling spending."

But Senator Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee, said Mr. Bush deserved credit. "It's easy to talk about closing the tax gap in the abstract," Mr. Grassley said. "It's harder to enact concrete proposals that may be politically unpopular. The president deserves credit for proposing concrete solutions."

While the budget outlined today will surely be changed through political conflict and negotiation in the months ahead, the spending plan is noteworthy as a statement of priorities and principles -- and the reactions to them. The budget, in several books the size of telephone directories, contains a vast array of items: food stamps, student loans, veterans' benefits, crop insurance, space travel, park beautification, crime-fighting and so on.

The proposed basic budget for the Defense Department is $481.1 billion, a 62 percent increase over 2001, Mr. Bush's first year as president, and an increase of $49 billion over what Congress provided for this fiscal year. But the figure does not include more than $93 billion in supplemental money in this fiscal year and about $145 billion in the next fiscal year for the Iraq and Afghanistan campaigns.

Democrats as well as Republicans, whether they back the administration's Iraq campaign or not, have emphasized that they stand behind American's sons and daughters in uniform. But it was clear that Pentagon spending would be scrutinized in the Capitol.

"The sums involved in the defense budget are staggering," said Representative Ike Skelton, the Missouri Democrat who heads the House Armed Services Committee. "We cannot provide an adequate national defense on the cheap, but neither can we afford to simply ratify the president's request without performing the due diligence and oversight our Constitution requires."

As staggering as the Pentagon figures are, they are topped by the proposed spending for the Department of Health and Human Services -- some $700 billion -- and for the Social Security Administration, about $656 billion.

But Democrats attacked the spending on many social programs as inadequate. For instance, Mr. Bush is asking for cutbacks of some $70 billion in Medicare and Medicaid over the next five years, an idea that Representative Charles B. Rangel of New York, the new chairman of the House Ways and Means Committee, said was "just asking for controversy."

Senators Charles E. Schumer and Hillary Rodham Clinton, New York Democrats, assailed the proposed health care cuts. "The president only cares about funding the war and funding tax cuts," Mr. Schumer said, while Ms. Clinton said the budget sends the message that "we're shutting the doors on the kind of country we've been."

Representative Rahm Emanuel of Illinois, chairman of the House Democratic caucus, said the president has apparently not heeded the lessons of the November elections. "Democrats will produce a budget that makes real progress toward balancing the budget, makes wise choices and supports the troops and our seniors," he said.

When Mr. Bush gained Congressional passage of "temporary" tax cuts in 2002 and 2003, he and his advisers doubtless knew that lawmakers would be wary of letting them expire, for fear of incurring the wrath of taxpayers.

Democratic leaders have said there is no need, yet, to revisit the tax cuts, because they are not set to expire until the end of 2010. Meanwhile, they argue, the government can bring in billions more a year by being more aggressive about collecting taxes owed but not paid.

But there are dangers in predicting too far ahead. In the 1990s, for instance, politicians and journalists were talking and writing about the "peace dividend," the great reservoir of surplus money being generated by the end of the cold war and the booming economy.

As the president was taking office in January 2001, the Congressional Budget Office projected that the federal budget would run a surplus in excess of $5.6 trillion between 2002 and 2011. But a recession, the president's tax cuts and wars in Iraq and Afghanistan dashed those expectations -- as did the terrorist attacks of Sept. 11, 2001.