Kerry's budget math met with skepticism

Author: James Toedtman

Published: August 24, 2004

Sen. John Kerry has gambled that voters will put a premium on balancing the federal budget. At almost every campaign stop, he blames President George W. Bush for squandering a $5-trillion federal budget surplus in the past four years and saddling future generations with the burden of financing Social Security, Medicare and the soaring federal debt.

But for all of the doubts about Bush's ability to cut the deficit, Kerry's own proposals may not add up.

"I agree Bush has been fully irresponsible," said Robert Bixby, executive director of the Concord Coalition, a bipartisan budget watchdog. "But they are both taking different routes to the same destination."

By the most reliable independent estimates, the Bush and Kerry budget initiatives have comparable price tags. Bush's primary initiative is to permanently extend tax cuts that would reduce federal revenues by $1.3 billion over the next decade. Kerry has proposed new spending of more than $600 billion and tax cuts of more than $600 billion.

"For all of the to-ing and fro-ing, they both say their goal is to cut the deficit in half in four years. But deficit reduction is not a priority with either one of them," Bixby said.

During his first term, Bush has seen the string of four straight balanced budgets under his predecessor Bill Clinton end and projected budget surpluses vanish. This year's $2.2-trillion budget includes a record deficit of more than $450 billion. His promise to cut it in half is not taken seriously by most independent budget experts and prompted growing concern among conservative Republicans.

Kerry, meanwhile, promises thrift. "We're going to return to fiscal responsibility because it is the foundation of our economic strength," he said at last month's Democratic convention.

But the Massachusetts senator has constructed an ambitious set of initiatives by mixing new spending and tax incentives, including a $653-billion plan to expand health care and medical coverage, $80 billion for 40,000 more U.S. troops, $55 billion for military families and veterans, $200 billion for education, and $130 billion in tax cuts and credits for companies that hire new workers.

According to estimates provided by the Kerry campaign and analysis by Leonard Burman of the Urban Institute and the Tax Policy Center - which jointly study tax, budget and social policies - the spending portion of Kerry's proposals exceeds $653 billion over the next decade, and the tax portion would reduce federal revenues by $602 billion over the same period.

Kerry says how he will pay

By making specific proposals, Kerry has taken the unusual step of saying how he will pay for them. For example, he said that proceeds from repealing the tax cut for those earning more than $200,000 a year would be split between tuition tax credits ($55 billion over 10 years) and health tax cuts ($177 billion over 10 years).

"We'll make government live by the same rule that every family has to follow: Pay as you go," he said at the convention. It is a discipline he has pledged to uphold, according to Gene Sperling and Robert Rubin, former President Bill Clinton's top economic advisers who are also advising Kerry.

"It is imperative that the next president has an internalized sense of how important this is," Rubin said last week. He was convinced, he said, that Kerry would "not propose anything that is not fully paid for."

But budget experts who have done the math are skeptical. "It looks unlikely to us under either Kerry or Bush that the deficit will be cut in four years," said Robert Greenstein, director of the Center on Budget and Policy Priorities. "Kerry claims he's committed to only things that are paid for. We think even if everything's paid for, that is not enough to cut the deficit in half," he said.

The debate is complicated by the perennial cloudiness of campaign math. This year, the question is where you begin your calculation. All of the cuts enacted since 2001 expire between now and 2014, and Congress has balked at Bush's call to make them permanent.

Kerry's major tax proposal has two components - protecting middle class tax cuts and repealing tax cuts for those earning more than $200,000. Protecting the middle class tax cuts requires making them permanent, which would reduce federal revenues by $361 billion.

But Kerry's tax calculation assumes all the tax cuts are permanent. Repealing the cuts for those earning more than $200,000 would generate $721 billion in new tax revenue, according to Burman, and help finance many new initiatives.

'They promise ... the moon'

Kevin Hassett, economist at the American Enterprise Institute think tank in Washington, D.C., puts the price tag of the tax and spending proposals at between $2.1 trillion and $2.2 trillion and dismisses the Kerry campaign's pledge to fiscal discipline.

"They do this at the same time they promise voters the moon and the stars." By any count, said Steve Schmidt, spokesman for Bush-Cheney campaign, "it doesn't add up."

More important, the budget hawks agree, is what the candidates aren't discussing. "This goes on without any mention of either the biggest revenue loss or the biggest expense," said Bixby, referring to the alternate minimum tax and the ongoing Iraq War.

The AMT was enacted 30 years ago to close loopholes exploited by wealthy taxpayers to avoid paying taxes, but has become a trap for many middle-income taxpayers, especially in high tax regions like New York and Long Island. Burman estimates that it would cost as much as $500 billion to correct the AMT. Bixby and many defense analysts project costs ranging from $30 billion to $60 billion a year in Iraq.

"More worrisome," said Maya C. MacGuineas, executive director of the centrist Committee for a Responsible Federal Budget, is that "Kerry has failed to even give lip service to how he would address the looming problems in the Social Security and Medicare programs - issues that have thus far been virtually ignored by both presidential candidates."

With budget deficits soaring and the pressure on Social Security and Medicare posed by the looming retirement of baby boomers, Greenstein also faults both candidates. "They are not preparing the public for the really tough choices that have to be made."

Paying for programs

The cost of John Kerry's major campaign proposals would seem to be prohibitive. Yet, the Democratic candidate's staff promises his administration will not spend more than it can pay for. Can he make the math add up?

The costs

Ten-year totals, assuming no change in current laws and Bush administration tax cuts expiring in 2010. Costs represent foregone revenue totals.

COST

HEALTH CARE $653 billion

Tax credits of $177 billion for employers and laid-off workers, plus coverage for children.

TAX CUTS * $361 bill to $721 billion

Middle-class cuts become permanent and top tax cuts repealed.

JOBS $120 billion

New jobs program, cutting corporate tax from 35 percent to 33.25 percent, and payroll tax holiday.

EDUCATION $200 billion

Establish new education trust fund and provide college tuition tax credits.

MILITARY $80 billion (new spending)

Add 40,000 troops.

VETERANS $55 billion

Improve veterans and military families care.

New revenue sources REVENUE

Cutting corporate welfare $300 billion

Ending corporate tax deferred on overseas profits $120 billion

Closing tax loopholes $75 billion

Reducing federal contract employees $50 billion

Sales of multimedia spectrum and bandwidth $35 billion

Modify estate tax $8 billion

* The Kerry campaign wants to shift much of the tax responsibility from the middle class to wealthier Americans. Middle-class tax cuts become permanent, but are repealed for those earning more than $200,000. Those tax cuts expire in 2010, but Kerry's calculation assumes that they would be extended:

Cost if the tax cuts expire $361 billion over 10 years

Cost if tax cuts are permanent $721 billion

SOURCES: KERRY CAMPAIGN, TAX POLICY CENTER