Dizzying Dive to Red Ink Poses Stark Choices
for Washington
The New York Times
September 14, 2003
By DAVID FIRESTONE
WASHINGTON, Sept. 13 - When President Bush
informed the nation last Sunday night that remaining
in Iraq next year will cost another $87 billion, many
of those who will actually pay that bill were unable
to watch. They had already been put to bed
by their parents.
Administration officials acknowledged the next
day that every dollar of that cost will be borrowed,
a loan that economists say will be repaid by the
next generation of taxpayers and the generation
after that. The $166 billion cost of the work so
far in Iraq and Afghanistan, which has stunned
many in Washington, will be added to what
was already the largest budget deficit the nation
has ever known.
With a force that has surprised even critics
of the administration, the Iraqi occupation
has pushed to the forefront a budget deficit that had
previously existed mostly as an abstract red
stain on Democratic bar charts. With no extra
money available for the foreseeable future,
real choices are being illuminated on
Capitol Hill - choices between electronic
bombs and electrical grids, between low taxes
now and lower retirement payments later.
Should Washington reconstruct Iraq's schools
and hospitals, lawmakers are asking, or
America's? Should it pay for more than
100,000 American troops to stay in Iraq,
or for 40 million seniors to be offered prescription
drugs through Medicare? And if it tries to do it all,
should it keep cutting
taxes?
The Bush administration says it can do all of
the above, once the tax cuts inaugurate a burst
of economic growth. Democrats and virtually
every mainstream economist say that something
will have to give, very possibly the government's
retirement promises to millions of aging baby
boomers.
These questions have emerged as the most
fundamental political issue dividing the two
parties, affecting almost every vote on Capitol Hill and
every speech in the current presidential campaign.
The deficit, once confined to Congressional
committee rooms and Washington research
organizations, has become a constant refrain
among all the Democratic candidates, who use
it to attack the administration's tax cuts and
financial stewardship. (None, however, have
proposed a cutback in spending or a serious
rethinking of big-ticket entitlement programs.)
The bleak choices now facing politicians and
policy makers were hard to imagine when
George W. Bush was inaugurated just 32 months ago,
before the drastic turnabout of the federal budget.
As the decade opened, the overheated economy
of the 1990's had left the government with a
flush of cash that seemed never-ending. There
were 281 billion extra dollars in the budget
that year, and the Bush administration,
looking a decade ahead, predicted that a
cumulative $5.6 trillion surplus would build up by 2011.
It seemed to be the brink of a golden era for
Washington, "an unprecedented moment in history,"
in the words of the administration's first budget plan,
issued a month after Mr. Bush was inaugurated.
He vowed that almost all the national debt would be
paid off and that retirement and health plans would be
strengthened for the future by setting aside trillions
in savings. Balanced budgets, so long in arriving,
seemed to promise an end to wasteful interest
payments and years of arguments pitting military
spending against domestic programs.
And then, within months, the glittering promises
crumbled. The budget was upended by what
economists now say were three independent forces
gathering in power at once: a steep economic decline,
a political consensus to slash taxes and the effects
of the 2001 terrorist attacks.
The surplus disappeared, replaced the next year
with a budget deficit that has since grown to a
record size. The $5.6 trillion surplus once predicted
for the 10 years ending in 2011 is now
a $2.3 trillion cumulative deficit under
the best-case prediction issued by the
Congressional Budget Office two weeks ago.
The $8 trillion difference between those numbers
has little precedent in American history. The long-term
budget forecast has declined as much in
the last two years as the total revenue collected
by the United States government from 1789 to 1983.
A Fall Worthy of Milton
"It really has been a Miltonian experience,
from the heights to the depths," said Robert D.
Reischauer, a former director of the Congressional
Budget Office, invoking "Paradise Lost" as a
metaphor for the budget's fall.
The current fiscal year, which ends this
month, was supposed to have ended
with a surplus of $353 billion, the
Congressional Budget Office
predicted two years ago; today, the office says
the year will end in a $401 billion deficit.
Next year's deficit was projected to be $480 billion,
but the new Iraq spending will bring that to
$540 billion or higher - close to the 5 percent
of the gross domestic product that many experts
warn is a serious danger zone for the economy.
And now the painful effects of the budget's
free fall are beginning to emerge. Though the
deficit hardly spells ruin for the federal government, it
already means spending battles over a variety
of popular nonmilitary programs, from education
to space flight to veterans hospitals. To make room
for the initiatives the administration favors - like
$1.5 trillion in tax cuts and at least $100 billion
in new defense spending - other programs are
being squeezed more tightly than they have been in years.
Disputes have broken out in Congress this year
on spending items that used to be routine, like
construction of housing for military families, which
the administration proposed cutting by 6 percent.
The administration invoked the deficit earlier
this year in explaining the size of its proposed 2004
budget for the Environmental Protection Agency,
which was 5.5 percent less than this year's spending.
(Congress is likely to restore some of those
funds.) And next year's budget could fall short
of paying for more than 100,000 housing
vouchers now used by low-income families,
said a study by the liberal Center for Budget
and Policy Priorities; it would be the
first time in 30 years that existing vouchers
were not renewed.
The pressure is likely to get worse, particularly
if the occupation of Iraq continues to consume
$4 billion a month. Joshua Bolten, the White House
budget director, said in a recent interview that
this coming year's 4 percent increase in
discretionary spending might well be reduced below 4
percent in 2005, which would be far below
the average recent increase for programs
that are not entitlements. Congressional Republicans
deny the Democratic charge that the deficit was
deliberately created to shrink government, but
nonetheless acknowledge that it will be a useful tool to
achieve that goal.
"There's no question that annual federal
deficits have been the only effective check
on Congressional spending in the modern era," said
Representative Mike Pence, an Indiana Republican
and a member of a conservative House caucus
pushing for big cuts in spending. "There's been a
lot more willingness on the part of our appropriators
to exercise discipline in the last eight months
than in the previous Congress. It doesn't justify
all that red ink, but it's kind of a silver lining
in that cloud."
Mr. Pence was referring to cuts in existing
programs, but both the administration and
the Democrats have proposed dozens of new
spending items, from the occupation of Iraq to
combating AIDS in Africa to improved domestic
security. For the foreseeable future, every major
new program now under debate in Congress,
including a $400 billion prescription drug benefit
for the elderly sought by both parties, will be paid
for with borrowed money.
There is no sign yet, however, that either overall
spending or tax cutting is changing course.
The conservative Cato Institute noted tartly last
month that Mr. Bush had never vetoed a spending
bill, had advocated huge farm and Medicare
programs and had presided over double-digit
increases in spending each year of his term.
Barely a month goes by when House Republican
leaders do not propose a new form of tax cut, and
Congressional Republicans join the administration
in saying they fully intend to extend the tax cuts
that are now scheduled to expire in 2005,
which would add another $1.6 trillion to the
cumulative deficit by 2013.
This course prompted the Congressional Budget
Office to issue an unusual warning in its forecast
last month: If Congressional Republicans and the
administration get their wish and extend all the
tax cuts now scheduled to expire, and if they
pass a limited prescription drug benefit for Medicare
and keep spending at its current level, the deficit
by 2013 will have built up to $6.2 trillion.
Once the baby boomers begin retiring at the end of this
decade, the office said, that course will lead
either to drastically higher taxes, severe spending
cuts or "unsustainable levels of debt."
The long-term effect of the budget's imbalance
was the reason the deficit was the leading
concern in a survey of economists last month by the
National Association for Business Economics,
topping even unemployment. Deficits can be
useful in stimulating a lethargic economy, but if they
persist for years, they could push up interest
rates and impose huge costs on Social Security
and Medicare at precisely the moment that the baby
boom generation will begin expecting its retirement
benefits. The Committee for Economic Development,
a group of business executives, warned
earlier this year that persistent deficits could lead,
for the first time in the nation's history, to
a lower living standard for future generations.
Copyright 2003 The New York Times Company
nytimes.com
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