No Escaping the Red Ink as Bush Pens '04 Agenda
The New York Times
Page A10, National Edition
"Saying the economic rebound had been "built on a foundation of
reckless and irresponsible tax cuts and record-setting levels of debt," one
Democratic presidential candidate, Howard Dean, issued a statement
this week asserting that the White House's fiscal policy would ultimately
come back to haunt the country.
"This president's approach," Dr. Dean said, "is the equivalent
of mortgaging your house to get spending money for the weekend."
November 29, 2003
By RICHARD W. STEVENSON and EDMUND L. ANDREWS
W ASHINGTON, Nov. 28 — President Bush is heading into 2004 facing
a growing budget deficit, frustration among some Republicans about
what they see as a lack of fiscal discipline and a challenge
in putting together an election-year agenda that will not plunge the government
all the deeper into debt, lawmakers, analysts and administration officials say.
The legislative victories chalked up by the White House and the
Republican-controlled Congress this year, including a new round of tax cuts and
the final approval this week of a Medicare prescription drug benefit,
came with a price tag that further weighed down a budget already saddled with
the costs of fighting terrorism and stabilizing Iraq.
The deficit, projected a few months ago to be around $475 billion
for the fiscal year that started on Oct. 1, now seems likely to hit $500 billion, up
from $374 billion last year. The White House's goal of cutting it at least
in half within a few years will be hard to achieve despite the economic
rebound and the growth in tax revenue it is expected to generate,
budget analysts in the government and on Wall Street say.
Douglas Holtz-Eakin, a former Bush administration official who
is now director of the Congressional Budget Office, said bringing the deficit down to
some $250 billion in the next five years "is going to be very hard
to do" even if the economic recovery remains strong and unemployment falls
sharply.
"The thing I would caution is that economic growth is not going
to be enough" to solve the fiscal problem, Mr. Holtz-Eakin said in an interview.
It is not clear whether the deficit will be enough of an issue next
year to hurt Mr. Bush's chances of re-election. But at a minimum it is limiting
the White House's options as the administration looks at new policy
proposals, from further tax cuts to new spending.
To avoid criticism that it is making the deficit even worse, the
administration is focusing attention primarily on initiatives that would have little or
no budgetary cost in the next few years, officials said. These include
new tax-free savings accounts, which could be set up in a way that would
actually generate additional tax revenue for several years before
creating substantial revenue losses down the road. They also include very
long-term proposals like an overhaul of Social Security.
With the economy growing again at a robust pace and starting
to generate new jobs, Democrats, despite their own advocacy of increased spending
on many programs, see the deficit as the most politically compelling
evidence of economic mismanagement by Mr. Bush.
Saying the economic rebound had been "built on a foundation of
reckless and irresponsible tax cuts and record-setting levels of debt," one
Democratic presidential candidate, Howard Dean, issued a statement
this week asserting that the White House's fiscal policy would ultimately
come back to haunt the country.
"This president's approach," Dr. Dean said, "is the equivalent
of mortgaging your house to get spending money for the weekend."
At the same time, Mr. Bush is coming under intensifying
pressure from conservatives in the Republican ranks
who want him to do more to choke
off what they see as an orgy of spending since he took office.
Although Mr. Bush has had some success at slowing growth
in spending on programs that receive annual appropriations, overall government
spending — including money for the war in Iraq, farm subsidies, medical
research and other undertakings — has grown at rates that have given
some Republicans heartburn.
"I would be in favor of the administration being much tougher, taking
the toughest possible stance on fiscal discipline," said the chairman of the
House Budget Committee, Representative Jim Nussle of Iowa.
Brian M. Riedl, a budget analyst at the conservative Heritage Foundation,
said government spending per household in the fiscal year that ended
Sept. 30 was $20,301 — the highest level since World War II, he said,
even after adjustment for inflation. (His analysis showed that the figure
peaked in 1944 at $26,445, as measured in current dollars.)
Though the administration has said the spending increases are largely
a result of a need to strengthen the military and protect against terrorism
at home, most of the new spending since 2001, 55 percent, has gone
to programs with no link to national security, Mr. Riedl said.
"The Republican Party," he said, "has grown addicted to federal
spending as a means to re-election."
Administration officials said they still expected to be
able to reduce the deficit through a combination of spending restraint and increased revenue
flowing from a healthier economy. "There's no doubt that both features
will be important to getting the deficit down," said N. Gregory Mankiw, the
chairman of the White House's Council of Economic Advisers.
But White House officials said the fiscal pressure would restrict
them somewhat over the next month as they make final a budget proposal for next
year, an exercise that will yield what amounts to Mr. Bush's election-year agenda.
"To some extent," Mr. Mankiw said, "the goal of spending restraint
puts a constraint on policy proposals."
Despite the shadow of the deficit, Mr. Bush is likely to set out plans
for further tax cuts and other new programs, even if he has to rely on budget
sleight of hand. One of the biggest ideas under consideration is a big
expansion of tax-free savings and investment accounts.
Such a plan could reduce federal revenue by billions or even tens
of billions of dollars a year in the long run. But it might actually bring in
additional revenue for a few years, as taxpayers sold stocks and other
financial assets, incurring capital gains in the process, to raise cash to
deposit in the accounts.
Mr. Bush is also maintaining pressure on Congress to extend
or make permanent the many elements of his previous tax cuts that will otherwise
expire at various points over the next decade. Compliance by Congress,
the Congressional Budget Office estimates, would reduce revenue by nearly
$1.4 trillion in the next 10 years.
In addition, Congress has deficit-increasing ideas of its own that
the White House has supported or at least not opposed. The energy bill that
stalled in the Senate before lawmakers recessed provides tax cuts
totaling $24 billion over the next decade. And House Republicans, pushing for an
overhaul of taxes on international corporations, want legislation that
would grant them $60 billion more of tax breaks in that period.
In the long run, the government faces rising interest costs from
the increasing level of debt it is amassing. (Debt held by the public, the portion of
the total national debt generated by year-to-year budget deficits,
currently stands at around $4 trillion.) Only a few years ago, when the nation was
awash in budget surpluses, both parties pledged to pay off the
debt held by the public. Such a step would have made it easier for the government to
address a problem now just over the horizon: the prospect that Social
Security and Medicare will not be able to pay full benefits to the baby boomers
as they retire.
Mr. Bush is considering a new push next year on behalf of his plan
to overhaul Social Security through the creation of private investment accounts,
a change that would require large though temporary infusions of cash.
But any effort to promote his approach will run into questions about whether
it is fiscally feasible given the likelihood of large long-term budget deficits.
Both the White House and the Congressional Budget Office are updating
their deficit projections and will make them public in January or
February, just when the presidential campaign is getting under way in earnest.
Copyright 2003 The New York Times Company |
