Riedl: Kerry's deficit-cutting plan would cost way too much

Author: Eugene B. Rumer

Published: September 27, 2004

John Kerry has pledged to cut the budget deficit even as he implements policies that would drastically increase federal spending. How much would he have to raise taxes to make good on both promises? Between $2,090 and $2,829 per household. And that's on top of his already promised tax hikes.

Specifically, Kerry says he will cut the current $422 billion budget deficit in half by 2008. At the same time, he proposes raising federal spending and making permanent the Bush tax cuts for lower- and middle-income families. Kerry claims he can do this all simply by rescinding the Bush tax cuts for the "wealthy," which he defines (at the moment) as households earning more than $200,000.

Let's break down the numbers.

The American Enterprise Institute, using third-party sources such as the Congressional Budget Office, estimates that Kerry's spending and targeted tax proposals would cost $1.7 trillion over the next decade. Adding in his plan to alter the Bush tax cuts would increase the deficit by $438 billion, according to The Heritage Foundation. Then there is Kerry's pledge to fix the Alternative Minimum Tax, which CBO says would cost $340 billion. Include the total added net interest from these policies, and you have an additional $586 billion.

Taken together, these policies would add $3.1 trillion in additional budget deficits over the next decade. Rather than halve the $422 billion budget deficit by 2008, Kerry's budget would actually push it up to $525 billion.

Skeptical readers may prefer an estimate based on the Kerry campaign itself, or on other liberal-leaning sources. They're in luck. The Kerry campaign's Web site concedes $1.1 trillion in proposed new spending and targeted tax credits over the next decade (based on gimmicks that would make an Enron executive blush). The Urban Institute estimates that Kerry's tax-cut alteration would increase the budget deficit by $364 billion. Add in the above-mentioned $340 billion to fix the Alternative Minimum Tax and the new debt interest payment of $448 billion.

Even this benefit-of-every-doubt calculation shows that Kerry would add $2.3 trillion to the budget deficit over the next decade. That 2008 budget deficit would reach $443 billion. Again, he's increasing the deficit, not halving it.

These estimates aren't surprising. Kerry's proposal to shave $211 billion off the budget deficit while also spending nearly $2 trillion more - on everything from health care to business subsidies to endangered-species protection to high-speed rail to free college tuition for volunteers - doesn't pass the smell test. No tax increase restricted to those earning more than $200,000 can bridge this large of a gap.

So how would Kerry deal with this reality? When President Clinton's campaign promises proved incompatible with his deficit-reduction pledge, he bridged the gap with large tax increases. Should Kerry choose the same route, he would have to raise taxes by $2,090 to $2,829 per household (depending on which budget estimate is used) in addition to his current proposed tax increases.

And after all this, Kerry's budget still ignores the most important economic challenge of our time: the $44 trillion shortfall in Social Security and Medicare.

Whoever is elected this year will be in the White House when the first baby boomers reach early retirement on Jan. 1, 2008. In the absence of reform, Social Security and Medicare will eventually require tax increases that, at today's prices and incomes, would top $10,000 per household. Kerry has so far presented no plan to avert this catastrophe. Even if he successfully cuts $211 billion off the 2008 budget deficit, it will matter little compared to the massive long-term Social Security and Medicare costs that may remain ignored.

When politicians make promises, it pays to run the numbers. In this case, the numbers give Americans an idea of just how much taxes might rise under a Kerry administration. And it gives us the basis for debating something even more critical: how such a tax hike on families and small businesses would affect job-creating investment and economic growth.

In short, are we willing to pay a huge price for a deficit-reduction plan that doesn't work?