Posted on 1-6-2003
White
House Shelved Deficit Report
By Peronet Despeignes, The Financial Times, Thursday 29 May
2003
- Many financial experts have warned that the massive budget deficits
described in the article below will bankrupt the USA government for the
next 25 years. One must also ponder whether the drafting of this report
was the main reason Paul O'Neill was removed as Treasury Secretary. Study
commissioned by O'Neill sees $44 trillion in red ink
The Bush administration has shelved a report commissioned by the
Treasury that shows the U.S. currently faces a future of chronic federal
budget deficits totaling at least $44 trillion in current U.S.
dollars.
The study, the most comprehensive assessment of how the U.S. government
is at risk of being overwhelmed by the baby boomgenerations future
healthcare and retirement costs, was commissioned by then-Treasury
secretary Paul O'Neill. But the Bush administration chose to keep the
findings out of the annual budget report for fiscal year 2004, published
in February, as the White House campaigned for a tax-cut package that
critics claim will expand future deficits.
The study asserts that sharp tax increases, massive spending cuts or a
painful mix of both are unavoidable if the U.S. is to meet benefit
promises to future generations. It estimates that closing the gap would
require the equivalent of an immediate and permanent 66 percent
across-the-board income tax increase. The study was being circulated as
an independent working paper among Washington think-tanks as President
George W. Bush on Wednesday signed into law a 10-year, $350 billion
tax-cut package he welcomed as a victory for hard-working Americans and
the economy.
The analysis was spearheaded by Kent Smetters, then-Treasury deputy
assistant secretary for economic policy, and Jagdessh Gokhale, then a
consultant to the Treasury. Mr. Gokhale, now an economist for the
Cleveland Federal Reserve, said: `When we were conducting the study, my
impression was that it was slated to appear [in the Budget. At some
point, the momentum builds and you think everything is a go, and then the
decision came down that we weren't part of the prospective
budget.'
Mr. O'Neill, who was fired last December, refused to comment.
The study's analysis of future deficits dwarfs previous estimates of the
financial challenge facing Washington. It is roughly equivalent to 10
times the publicly held national debt, four years of U.S. economic output
or more than 94 percent of all U.S. household assets. Alan Greenspan,
Federal Reserve chairman, last week bemoaned what he called Washington's
`deafening' silence about the future crunch. Bush signed into law a $350
billion tax-cut package on Wednesday saying: "We can say loud and
clear to the American people: You got more of your own money to spend so
that this economy can get a good wind behind it."
The estimates reflect the extent to which the annual deficit, the
national debt and other widely reported, backward-looking data are
becoming archaic and misleading as measures of the government's solvency.
Mr. Smetters, now a University of Pennsylvania finance professor, said
tax cuts were only a fraction of the imbalance, and that the bigger
problem `is the whole [budget] language we're using'.
Laurence Kotlikoff, an expert on long-term budget accounting, alleged in
a recent Boston Globe editorial that the Bush administration suppressed
the research to ease passage of the tax-cut plan. An administration
official said the study was designed as a thought-piece for internal
discussion `one among many left every year on the cutting-room floor' and
noted the budget's extensive discussion of projected, 75-year Social
Security and Medicare shortfalls.
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