The new estimates for the ten-year cost of the Medicare prescription drug plan are out and, as you probably know by now, it's pretty ugly. The short story, from the Washington Post (via Hugh Hewitt):
The White House released budget figures yesterday indicating that the new Medicare prescription drug benefit will cost more than $1.2 trillion in the coming decade, a much higher price tag than President Bush suggested when he narrowly won passage of the law in late 2003.
The piling on has, of course, begun -- Max here, and Angry Bear here, for example. But before we get too carried away, this picture documenting the historical misses in budget targets is worth keeping in mind.
The source is Appendix C of The Budget and Economic Outlook: Fiscal Years 2006 to 2015.
Note the magnitude of these annual projection errors. In the much heralded surplus years of the late 1990s, the misses were hugely favorable -- well over $100 billion each year. And the discrepancy was not due to policy changes, but unforeseeable economic developments and "technical factors," or errors in estimating the budgetary consequences of particular policies. (It's also interesting to note that the misses were almost all positive in the Clinton years -- the poor Republicans seem to get the other end of the stick. As I said in this article some years ago, maybe it's better to be lucky...)
The lesson, to me, is that all the harping about this budget projection or that economic assumption is, well, ridiculous. The confidence intervals on these things are so large that no one -- and I mean absolutely no one -- has any solid grounds to complain about the baseline assumptions of others. You're all going to be wrong.
I'm not being nihilistic about this. The point is the conversation should be how much of our incomes we want allocated by the government on average, who we want to tax to pay for it, and how we want to tax them. The great benefit of the rules implemented in the administration of Bush the elder (with the Omnibus Reconciliation Act of 1990) and the Clinton administration (with the Omnibus Reconciliation Act of 1993) is that they framed the projections in the context of those fundamental decisions.
Nouriel Roubini suggests returning to that world in this post. I think he wrongly suggests that this implies the current administration would have to reverse its tax policies -- it only means that they would have to pay for them with reduced spending, which I gather they are more than willing to try. But on the basic suggestion that we get back to rules that force those types of decisions, we are agreed.