Bad Housekeeping

Something's getting cut in half in the Bush administration budget that comes out today - and you can bet it won't be the deficit. Rather, White House Office of Management and Budget Director Mitchell E. Daniels Jr. is doing away with the practice of issuing 10-year forecasts of budgetary trends. He plans to lop off the projections at five years instead. Mr. Daniels presents this as a simple matter of budgetary good housekeeping; the 10-year numbers, he says, are "worse than a wasted effort" because they encourage policymaking based on faulty prognostications. To a certain extent, he has a point. The forecasts are notoriously unreliable that far into the future. Exhibit A is the great disappearing surplus. Two years ago, it was projected to be $5.6 trillion over 10 years; now, according to the latest Congressional Budget Office estimates, that's essentially gone. Yet politicians (and, truth be told, journalists) tend to use these numbers as if they were carved in stone, with decimal-point precision that is entirely illusory. The 10-year forecasts have been used by the OMB only since 1996; before that, the estimates were five years ahead and, until 1971, just three years.

But let's be honest - this is more than housekeeping. This administration knows how to play the numbers game to its advantage and doesn't hesitate to do so. During the last round of tax cuts, the administration used the 10-year window to make its figures look good. It promoted the projected surplus, two-thirds of which was forecast to be enjoyed in years 6 through 10, to help the tax cuts appear affordable. It also set the tax cuts to expire at the end of 2010, enjoying a year of savings that no one really expected to happen. Somehow, the administration wasn't quite so troubled about long-range forecasts then.

Now that the administration wants - surprise! - to make the tax cuts permanent, that 10-year horizon doesn't look quite so rosy. According to estimates by the CBO, the cost of extending the tax cuts would be $600 billion in the first three years alone - money that the five-year plan deals with by simply putting it off the books. Limiting the projection to five years would also have the effect of masking the true costs of other administration proposals. For example, the administration wants to create new savings accounts that would let taxpayers contribute money now (after paying taxes on it) and withdraw it for various purposes down the road (without paying taxes on any gains). Whatever the merits of that plan, it has the short-term budgetary benefit of boosting tax revenue now (more people will put their money into the taxable accounts) without taking into account the cost later (in taxes that otherwise would have been paid eventually on the investment income). If the administration wants to emphasize the five-year instead of the 10-year forecasts, that's fine. It can educate the public about the uncertainty of such far-off fortunetelling. But there's no reason not to also show the 10-year numbers. Or, at least, no good reason.