The chimera for our times

Author: Editorial

Published: January 22, 2004

The phrase "fiscal conservative" has become the chimera of the moment, describing significant numbers of members of Congress -- including, it seems, most Republicans -- and the president of the United States. Unfortunately, there was nothing in President Bush's State of the Union message on Tuesday night to suggest much need for rephrasing in the year ahead, which means the continuation of a fiscal policy that threatens the long-term stability of the nation's economy and the future well-being of our children and grandchildren.

We don't mean to sound like some fiscal scold, certainly not when so many people seem to be having such a swell time. After all, the economy keeps growing (although with historically underwhelming increases in jobs), and the stock market keeps rising (although our saying so probably jinxes it for today). Oh, yes, members of the Republican-controlled Congress keep spending as if there is no tomorrow or the day after that, and the president keeps indulging them by signing every spending bill they send along for his signature.

On Tuesday, Bush told Congress, in effect, to sober up: He will send a new budget to Capitol Hill next month, he said, that will fund America's three wars (on terrorism and in Iraq and Afghanistan), homeland security and important domestic needs and still limit the growth in discretionary spending to less than 4%. This, he added, would cut the budget deficit in half over five years.

Anything is possible; probability is another matter. According to a table that ran in the Wall Street Journal on Tuesday, Congress and the Bush administration have recorded bigger annual increases in spending than any other Congress and administration in at least two generations. Nearly twice as much as Lyndon Johnson during the Vietnam buildup of the late 1960s. Twice what the first President Bush logged. More than three times the percentage increases racked up by President Clinton.

New demands on spending are on the way, despite Bush's relatively modest proposals for increases. AARP, for example, already is lobbying to improve the prescription-drug benefit for seniors enacted last year; if it is successful, the $400 billion floor for the benefit is bound to rise. (We cite this not as an objection to drug-cost relief for seniors but as a measure of the overall cost pressures on the budget).

Meantime, members of Congress have demonstrated little inclination to curb their appetite for pork or to crack down on waste in government programs, agencies and executive branch departments.

Then there is the revenue side of the equation. The president on Tuesday reiterated his wish that the tax cuts of the past three years be made permanent; most provisions of the tax bills are supposed to expire at various times in this decade, starting at the end of this year. These so-called sunsets were included to keep the cost down.

Making the cuts permanent, two economists for the Brookings Institution estimated on Wednesday, will reduce federal revenues by $2 billion over the next decade. Economic growth can make up for some of that loss, but as economists William Gale and Matthew Hall point out, recent work by the non-partisan Congressional Budget Office and others indicates that the partial offset would be minor. Especially if job growth remains sluggish: Fewer jobs equal smaller tax revenues that would help to reduce deficits.

Republicans in Congress and the president could have opted for somewhat smaller tax cuts, distributed with more emphasis on the broad middle class, and made them permanent. They didn't and they apparently don't want even to consider revisiting the issue now.

As we have said many times, these deficits are not a problem this year or even next; there is still plenty of slack in the economy, and the tax cuts serve a useful purpose in stimulating demand for goods and services. By some measures, they accounted for about one-quarter of the surge in economic growth in the last half of 2003.

But long term, continuing large deficits pose a huge threat. They can drive up interest rates as the federal government, which must finance its debt by borrowing, competes with and crowds out private-sector borrowers. They can cause inflation to rise and they can impede growth and lead to economic downturns.

Some economists now project accumulating deficits of $500 billion or more each year, huge additions to the national debt and, eventually, economic damage that makes the last couple of recessions seem like make-believe.

Economic forecasts are carved in soft clay, not concrete, and they are spewed out by computers that depend on the data men and women feed into them. But crude as long-term forecasts may be, they are the best tools we have to glimpse the economic future.

Barring a serious course correction sometime soon, the long-term future reckons to be dangerous territory indeed.