The budget debate took a dramatic turn last week when Republican leaders and the administration started talking seriously about using the much larger-than-expected surplus over the next 15 years to pay for (1) a Social Security fix, (2) a Medicare fix, (3) a tax cut and (4) who knows what else.
But before the soon-to-be-released forecasts burn too big of a hole in everyone's fiscal pockets, we ought to admit just how inaccurate these estimates typically are, and therefore how foolhardy such policy changes could be. We should also ask why everyone is in such a rush to do something with a big increase in the forecasted surplus that will not start to take off for several more years.
And Away We Go
These updated forecasts, which will be released by CBO this Friday and by OMB the following Monday, will indeed be impressive. Between fiscal 2000 and 2008, the federal budget surplus (excluding the Social Security trust fund) could rise from the previously forecast $9 billion to somewhere between $500 and $600 billion. Over the 15-year period between 2000 and 2014, the surplus including Social Security supposedly could total an amazing $4.4 trillion.
No Congress or presidential administration has ever had this much seemingly excess money to play with. Few have even dared fantasize about it. It is little wonder, therefore, that there is no shortage of ideas about what should be done now that official forecasts may show it could happen.
But even though these latest projections will show what will be unprecedented good news, lawmakers should not forget a very basic fact: estimates like these are always wrong. This is especially true of very long-term forecasts, which have always been and will continue to be much closer to fantasy than fact.
Just how bad are long-term forecasts? In 1993, CBO estimated that there would be a $357 billion deficit in fiscal 1998 instead of the $70 billion surplus that was actually recorded. In 1994, OMB's five-year forecast showed the fiscal 1998 deficit being $250 billion. CBO and OMB five-year estimates missed the 1991-1998 actual results by an average of $177 billion and $240 billion, respectively, each year.
And it could be even worse. The new forecasts will be for 15 years rather than the 5- and 10-year estimates that have already proved themselves to be wildly wrong. That means that while the 15-year estimates will use as sound methodology as possible, they will be based on far more speculative assumptions about what Congress and the president will do, how the economy will perform, and what unexpected contingencies will arise.
For example, what about discretionary spending? The very tight spending caps for 2000-2002 are already under serious attack, so the likely assumption that they will be maintained is probably wrong.
This would admittedly produce a relatively small change. But what should be assumed for the years after 2002, when there are no caps? Will spending stay at the fiscal 2002 level? Will it grow by the rate of inflation (whatever that will be)? Or will the pent-up spending demand that has mounted since the 1997 budget deal explode when the procedural limits are eliminated?
And what is being assumed for natural or man-made disasters, which would push discretionary spending even higher each year? Given last year's misuse of the emergency exception to the spending limits and the current demands that the caps be raised, anything but the most conservative surplus assumptions are almost laughable.
Why Now?
The big question, though, is why any of this an issue now. Even with the new numbers, the fiscal 2000 budget -- the one that the president is about to send to Capitol Hill and that Congress will debate -- is still expected to show a deficit when Social Security is not included, so there really is no money to spare this year. The 2001 and 2002 budgets may show a non-Social Security surplus, but they will be so small that there will not be enough money to do much of anything.
This means the forecasts for the next three years -- the three that have the highest likelihood of being accurate -- really point to no substantial changes from current taxing and spending policies. It is only the new estimates beyond 2002 -- the ones much more likely to be wrong -- that are providing the impetus and dollars for policy makers to consider big changes.
Unfortunately, it may be years before we know whether the larger surpluses that are about to be forecast actually occur. At that point it will be far too late to realize that we have been taken for quite a ride.
Question Of The Week
Last Week's Question. There were many responses and few wrong answers to last week's question, which asked you who had the statutory responsibility to appoint the director of the Congressional Budget Office. The answer is that even though the chairs of the budget committees do all the work, the appointment must be made by the speaker of the House and the president pro tempore of the Senate.
The winner, who was chosen by random drawing from the correct responses, was Rick Ubelhart of Science Applications International Corporation. Rick gets one of the hottest clothing items in all of budgetdom -- the all new "I Won A 1999 Budget Battle" T-shirt to wear during all budget-related floor debates this year
This Week's Question. "It's A Small Surplus After All" is not the only possible federal budget theme park ride. Come up with the best name for the ride and you, too, could win an "I Won A 1999 Budget Battle" T-shirt. Send your response to scollender@njdc.com.
As The Budget Turns
Time is running out to sign up for "As The Budget Turns," a half-day executive briefing on Feb. 10 in Washington, D.C., conducted by "Budget Battles" author Stan Collender and sponsored jointly by the National Journal Group and Fleishman-Hillard. The latest in computer presentation techniques, including sound and visual effects, will make this the most fun briefing you attend all year.
NEXT STORY: Debate on supplemental spending to open