Max Sawicky tries to unspin the unspinnable--to say quickly, concisely, and convincingly that what has caused the deterioration in the long-run fiscal outlook is not the Republican "trifecta" of "war, recession, and national emregency." Instead, the major causes of the deterioration are (i) the gradually phased-in 2001 tax cut, and (ii) a revised economic model that is more cautious about the likely future relationship between real GDP and tax revenues.

He's right, of course. And Mitch Daniels is wrong.

Weblog Entry - 08/26/2002: ...in his testimony today, OMB Director Mitchell Daniels repeats the basic line -- that war, recession, and homeland security are important causes for the worsened budget outlook. But just how important?

Let's go over some very simple math. In January 2001 the projected surpluses for 2002 through 2011 were $5.637 trillion. Today under the President's proposed budget, they would be $444 billion for the same ten year period (p. 7, Daniels). Where did the $5.193 trillion fly away to?

According to Daniels, it breaks down this way: tax cuts, $1.491 trillion; 'other enacted legislation,' $760 billion; President's proposals, $1.273 trillion; and 'economic and technical reestimates,' $1.669 trillion.

Now as I've been ranting for a couple of weeks now, the last item -- economic and technical reestimates -- encompasses much more than recessionary effects. The latter were previously estimated to be about $133 billion over ten years by CBO. The remainder reflects a revised economic projections model. As Daniels says (p. 7), "he change reflects the recession's immediate impact and a more cautious outlook about long-term revenues (emphasis added)." So the recession component is very small potatoes in the grand scheme of things. On page 2, the testimony describes the recession as "shorter and shallower than most," with "an early recovery far stronger than assumed in February's budget."

What about defense and homeland security? Those items are buried in 'other legislation' and 'President's proposals,' also known as spending increases and tax cuts. According to OMB, these two sum to $2.251 trillion. I estimate that the effect of the Bush defense spending trajectory on the surplus is $592 billion over ten years. (You can't look this up; you'll have to trust me.) The budget only publishes numbers through 2007, so I assumed the rate of growth from 2002 to 2007 would continue through 2011. My guess on homeland security is even rougher, but probably less than $100 billion. (Details available upon request.) So all this may be $700 billion, buried in that $2.251 figure. Recall the recession adjustment of $133 billion. So the total 'trifecta' is $833 billion. How important that is, in comparison to the tax cuts (past and proposed) I leave to the reader's judgement.