Bush's Impossible Math
The unreal quality of the Bush administration's
economic program reached new heights last week. "I
believe deficits do matter," Vice President Dick Cheney
declared at a summit meeting of skeptical world leaders
in Davos, Switzerland, "but I'm also a great believer in
the policy we followed." As the Congressional Budget
Office reported this week, whether that policy of
permanent tax cuts is followed or not will largely
determine the size of the deficit.
The CBO says the deficit is headed for a record $477
billion this year. Over the next 10 years, if the cuts
become permanent, it projects a deficit of more than $5
trillion. That indebtedness would reduce annual
household income by about $1,800 a year because of
slowed growth. Such debt is costly to maintain, just like
a chronic maximum balance on a credit card.
The Federal Reserve on Wednesday held to its
record-low current interest rates but warned that the
1% level can't last. The market tumbled. Pressure is
mounting to raise interest rates to attract foreign investment to finance the federal
debt. If — actually when — the average mortgage interest rate goes up from 6%
to 7%, a family taking out a 30-year mortgage for $250,000 will owe another
$2,000 a year to the lender.
President Bush claims he can tame the deficit by limiting growth in spending,
excluding homeland security and defense, even while making tax cuts permanent.
Considering the uncounted costs of war in Iraq and the pork-laden domestic
spending spree that Congress has been on, including the pharmaceutical company
bonanza of the Medicare drug benefit, there is no form of math that can do what
Bush predicts.
As a new study by the center-left Brookings Institution shows, it will require more
than reining in, for example, agriculture subsidies to begin rebalancing the budget.
The study by former White House budget director Alice M. Rivlin and Brookings
fellow Isabel V. Sawhill, among others, makes the obvious point that tax cuts for
the top income brackets will have to be rolled back, not made permanent. Pain
will also have to fall on the middle class, in speeding up higher age requirements
for Social Security and higher Medicare premiums. Then come the poor, with a
restructuring of Medicaid that would scale back the federal share of payments to
the states.
Federal revenue is drying up because of the tax cuts already in effect. Individual
and corporate income taxes are expected to equal 8% of the economy this year
— the lowest level since 1942. If the tax cuts are made permanent, the 1% of
families with the highest incomes would receive $159 billion in breaks in 2014
alone. Congressional Republicans and Democrats can still bring the budget under
control, as they did during the early 1990s. But the conclusion of the Brookings
study, that the economy cannot be saved painlessly, should be what taxpayers
and voters recognize as the truth.
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