US administration shelved deficit report

US administration taking big risk, hoping tax cuts will help stimulate economy

The study was commissioned by former Treasury secretary Paul O’Neill, . According to the British Financial Times newspaper, it is “the most comprehensive assessment of how the US government is threatened with being overwhelmed by the future healthcare and retirement costs”.
 
But the Bush administration decided to keep the findings out of the annual budget report for the 2004 fiscal year, published in February, as the White House campaigned for a tax-cut package that cut government revenues by $350 billion a year.

The study’s chief conclusion is that sharp and permanent tax increases or massive spending cuts – or a combination of both – are unavoidable if the US is to meet the healthcare and retirement benefits promised to future generations.

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The analysis was spearheaded by Kent Smetters, then Treasury deputy assistant secretary for economic policy, and Jagdessh Gokhale, then consultant to the US Treasury.
 
Smetters said the report was “never meant to be a Treasury study. It was meant to be some internal thinking…on how to reform the budget”.

But when interviewed, Gokhale said: “When we were conducting the study my impression was that it was slated to appear [in the budget].”

Gokhale also said US administrations since the early 1990s had ignored similar accounting works based on “generational accounting analyses”, which pointed at much larger deficits than the official government figures recognised.

Tax cuts

Bush signed in tax cuts on Wednesday, in the face of Tresury report

President George W. Bush signed a 10-year, $350 billion tax-cut package into law on Wednesday, welcoming it as a victory for hard-working Americans and the economy.

He has said it will help generate jobs and fuel sputtering economic growth. But his tax-cutting agenda has been criticised for inflating future budget deficits, which could act as a choke on US economic growth.

Federal Reserve chairman, Alan Greenspan last week criticised what he called Washington’s “deafening” silence about the coming challenge to federal finances. The Smetters-Gokhale study’s sum dwarfs previous estimates of the problem facing Washington as the 1960’s generation of ‘baby boomers’ retire.

Canada critical

US neighbour Canada criticised the size of the US budget deficit, which could hit 500 billion dollars this year.

“It’s important for economic stability,” he told reporters after a meeting with Greek Prime Minister Costas Simitis.

“We need a stable economic situation and it’s normal when you’re going to have a summit debating the economic situation that you comment on that,” he said.