Revised February 5, 2002

President's Budget Uses Accounting Devices And Implausible Assumptions to
Hide Hundreds of Billions of Dollars in Costs

by Robert Greenstein

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The President's budget issued today projects a return to budget balance in fiscal year 2005 and a $1 trillion total budget surplus over the next ten years, although it also projects that all of the surplus will be due to Social Security and that the budget outside Social Security will run a $1.5 trillion deficit over this period.

These projections, however, are not realistic. They are based on an array of budget devices and implausible assumptions that mask hundreds of billions of dollars of tax reductions and government expenditures that are virtually certain to occur but are omitted from the budget.

Because the Administration's budget omits extension of this provision, the revenue numbers in the budget are based on the implausible assumption that the number of taxpayers subject to the AMT will swell from 1.4 million in 2001 to 39 million by 2012. (Buried in one of the budget books is an acknowledgment that the revenue numbers assume that 39 million taxpayers — one of every three in the nation — will be subject to the AMT by 2012.) There is, of course, no possibility that the Administration or Congress will allow this to happen. The Administration clearly intends to propose addressing this problem before the current AMT relief provision expires in 2004, and there is little question that AMT relief will pass. Joint Tax Committee estimates indicate that the cost of addressing this problem amounts to several hundred billion dollars over the next ten years, a cost the Administration's budget conveniently omits. Moreover, assuming that a swollen AMT is in effect in 2011 and 2012, as the budget does, helps the Administration in a second way — it reduces the costs shown in 2011 and 2012 for extending the tax cuts scheduled to expire in 2010, since the AMT is implausibly assumed to cancel out a significant share of these tax cuts.

By omitting or understating various costs and understating the ultimate costs of the tax cuts, the Administration presents a much rosier picture than is warranted.

End Note:

1.  This figure does not include the cost in fiscal year 2002 of the tax cuts the Administration is proposing as part of a stimulus package.