The much-touted Mid-Session Review from the White House Office of Management and Budget substantially lowered deficit projections for this year, and the administration has touted this as evidence of its commitment to fiscal discipline. It is true that the budget deficit has been declining, but the reasons are entirely on the revenue side, which is to say that gigantic revenue growth is outpacing merely immense growth on the spending side. This situation exposes major flaws with the fixation on deficits in the public consciousness: it lets Washington off the hook for excessive, wasteful spending whenever revenues are booming, and it ignores looming entitlement obligations.

One part of the White House talking points that is true is that the budget data reflect the dramatic success of the 2003 Bush investment tax cuts. The actual data, not projections, from the Treasury Department’s Financial Management Service have been released through the third quarter of fiscal 2006, and the numbers are stunning. Corporate income tax receipts increased 27% this year versus the first three quarters of 2005. Individual income tax receipts increased a robust 14.5%, while non-withheld income tax receipts, which include dividend, capital gains, and self-employment income, jumped by 21.7%.

All of these numbers are a continuation of a trend that began almost immediately from when the 2003 Bush tax cuts were enacted. Those tax cuts lowered the cost of capital and boosted the after-tax rewards for investment, savings, and work. The capital gains rate cut, in particular, breathed life back into the stock market and triggered a wave of new capital formation that drove the economic recovery and, consequently, the sharp in increase in tax revenues.

Unfortunately, if one purpose of those tax rate reductions was to make government smaller and less intrusive, they have been a failure.

The tax rate cuts have triggered such rapid economic growth that they have been fueling larger, rather than smaller government, which suggests they did not go nearly far enough, and the capital gains and dividend taxes should be completely repealed.

While the deficit numbers are being touted — and year-to-date the budget deficit is 17.2% smaller than it was last year — federal spending continues to set fresh record highs and expand rapidly. In 2006, spending has increased by 8.8% year to date, and the president’s Mid-Session Reviews projects a 9.1% spending increase for the full year. Either of those would make this year’s spending increase the largest for any year since 1990. Bush is now nearly six years into presidency and has yet to veto a single bill, despite the fact that annual appropriations bills have consistently exceeded his requested funding levels.

The budget deficit, whether shrinking or not, is dwarfed by the federal government’s entitlement obligations.The publicly held debt, which includes all of the bonds used to finance past and present budget deficits, is currently $4.8 trillion.That is certainly a lot of money, but it is nothing compared to the liabilities of Social Security and Medicare. According to the most recent report from the trustees of those programs, Social Security has a $13.4 trillion liability, while Medicare has about $70 trillion in liabilities.The Medicare prescription drug benefit, a signature Bush initiative, by itself created a new $16.2 trillion liability for taxpayers.

The assertion that the shrinking budget deficit is evidence of fiscal restraint is simply contrary to the facts.Taxpayers should not lose sight of the fact that a government of any size could eliminate budget deficits by ramping up tax revenues. Proponents of fiscal restraint should therefore stop fixating on deficits and instead focus on current and future spending, especially in the entitlement programs, in order to limit the size of government.

Mr. Kerpen is a policy analyst in Washington.