Promise Vs. Reality

Author: David Lightman

Published: August 1, 2004

BOSTON -- John Kerry is rolling through America making a lot of promises he probably can't keep. Not with a divided Congress and a ballooning federal deficit waiting should he win the presidency.

In his Thursday night acceptance speech and subsequent campaign appearances, as he did through much of the primary season, the Democratic nominee rattled off a long list of things he'd do differently: cutting tax breaks for the wealthy, lowering taxes for the middle class, reducing personal health care costs, providing help with college tuition and pursuing a foreign policy in which traditional allies are consulted and respected.

But perhaps more daunting than the task facing President Bush - to defend his record - are the three big questions Kerry has to face: Will his proposals make the already dangerous deficit worse? Will a Republican-controlled, or even a split, Congress let him get anything done? Are his foreign policy ideas realistic?

Deficits

"His tax and spending plans sound very sensible," Tax Foundation President Scott Hodge said, "but intuitively it doesn't add up."

The Massachusetts senator says he would "strengthen the middle class" by offering a number of new spending and tax programs. He proposes tax credits of up to $4,000 each year for college tuition and $5,000 for child care expenses, a new tax break to employers for creating jobs that could be affected by overseas competition and a cut in health care premiums of up to $1,000 per year.

To help pay for all that, he would roll back the Bush tax cuts given to those earning more than $200,000. Their top rates, now 33 and 35 percent, would revert to the pre-Bush levels of 36 and 39.6 percent in 2005, and dividend rates would rise.

A study last week by the Urban Institute's Leonard E. Burman and Jeffrey Rohaly estimated that Kerry's middle class initiatives would cost $602 billion over 10 years - $361 billion for the tax changes (including revenue gained from the higher income increase), $71 billion for the college credits, and $177 billion for health care tax incentives. This would be slightly offset by a revenue increase of $7 billion to $8 billion from changes in estate taxes.

While that's far less than the estimated $1.2 trillion Bush's tax cut plans would cost over the same period, Kerry's promises would have roughly the same impact on the deficit, Burman and Rohaly conclude, because the Democrat's health insurance proposal would cost another $653 billion.

Kerry has pledged to cut the deficit in half in four years through three major strategies: Insist that any new spending be offset by cuts elsewhere; cut wasteful spending; and assume that boosting the middle class and job creation spur the economy, meaning more revenue is collected.

Rohaly was circumspect about that strategy. Asked if it would cut deficits, he said, "You'd have to talk to the Kerry campaign about that."

The campaign's line is that "you can look at his proposals as a down payment on deficit reduction," said Clinton administration Labor Secretary Robert Reich. He noted that it took four years to balance the budget after President Clinton's big deficit reduction package.

But in today's fiscal climate, Kerry may not have four years to persuade a nervous Wall Street that his policies are sound. The deficit was a record $375 billion last year and Friday the White House projected that this year's deficit will hit a record $445 billion.

Interest rates are inching up again, and higher deficits are thought to mean rates could go even higher, since they force the government to compete with the private sector for limited funds. That, in turn, drives up the cost of money, or interest rates.

"Kerry's plan does have the potential to jack up deficits to levels we haven't seen," said Hodge.

Peter Orszag, senior fellow at Washington's Brookings Institution, agreed it could exacerbate the deficit dangers. "Many policymakers appear to be insensitive to the longer-run risks to U.S. economic performance from sustained, large budget deficits," he said. "Those risks are real, and the sooner we start to reduce them, the better."

Congress

Clinton faced a similar deficit problem in 1993, and he first used his mandate to push through a $496 billion deficit reduction plan that raised taxes on the wealthy and made significant spending cuts.

The lesson for Kerry is that even Clinton, who came in with Democrats controlling Congress, had a hard time getting his package approved. It barely passed Congress - Vice President Al Gore broke the tie in the Senate - and didn't get a single Republican supporter.

The parties today are deeply divided on tax and spending issues. Both President Reagan and the current President Bush won passage of significant tax cuts in their first years, and both had Democratic help.

But ever since the elder President Bush agreed to raise some taxes in 1990, Republicans have largely refused to vote for anything that would allow voters to accuse them of raising taxes.

And Democrats are less inclined to cooperate on such matters, believing they got burned in 2001 when they went along with Bush's tax and education spending plans.

"Mea culpa. I was gullible," said Sen. Mary Landrieu, D-La., one of those who supported Bush at the time. "They got me then, but I've got their number now."

While Democrats have a decent chance of winning control of the Senate, it would take unusually long coattails to gain a majority in the House. Reich, who has advised the Kerry campaign, argued that while that could mean setbacks, it's important to see the Kerry strategy with a long-range view.

"Even if we win one House, we would have enough clout to at least stop the damage to the deficit," said Reich, by getting some of Kerry's initiatives approved. "Once we could show we were turning things around, we could do even more."

Where Kerry might be able to negotiate in a divided Washington is on wasteful spending. Historically that's been difficult, because Congress is a collection of 535 people all fighting for parochial interests.

Still, said Byron Dorgan, D-N.D., chairman of the Senate Democratic Policy Committee, "this is a big bureaucracy, and [cutting waste] can be done. You can argue that in recent years, we really haven't worked hard on this."

Nonsense, counter Republicans. "We Republicans have been trying to cut waste for years," said House GOP campaign spokesman Carl Forti

Foreign Policy

Kerry would probably have more success in implementing his foreign and military policy, if only because there's a tradition in Congress of both parties working together on such issues.

His major promise on Iraq and the war on terrorism is that he'll conduct a smarter policy, one that engages and consults traditional American allies, such as the NATO countries. His biggest military pledge is that he'll add 40,000 active duty troops and boost the number of special forces.

At issue is whether Kerry could more reasonably engage allies alienated by Bush's pre-emptive strike in Iraq. The domestic politics of some of those countries, notably France and Germany, would make it difficult for such nations to suddenly embrace U.S. policy in Iraq.

At the same time, analysts thought Kerry would give them a reason to start fresh. "All things being equal, Kerry would have a better shot at cooperation than Bush," said Charles Pena, director of defense policy studies at Washington's Cato Institute.

Pena was less enthusiastic about the Kerry plan on troops. Rather than simply adding more, he said, the debate should center on whether the U.S. should re-deploy what it has.

"Kerry will argue he understands very well the importance of more special forces, for instance," Pena said, "but you could argue that so does [Defense Secretary] Donald Rumsfeld."

Implementing that plan, like most of Kerry's other initiatives, just won't come easy, if it comes at all, and while Kerry will tour the country making promises, the people who will eventually vote on them are more cautious.

"All of the questions about whether these things can be done," said Landrieu, "are good questions."