Growing deficit dogs Republican president, Congress

Author: Lawrence M. O'Rourke

Published: November 26, 2004

While President Bush has promised to spend the "political capital" he acquired through winning a second term, neither he nor Congress has committed to an austerity program that could quickly cut the soaring federal budget deficit.

Such a program could force cuts in anticipated spending on Social Security and Medicare and significantly reduce the federal commitment to education, housing and environmental cleanup. The level of fiscal austerity that would be needed to bring deficits under control quickly could even show up in scaled-back spending on such high-priority items as homeland defense and the military, according to congressional budget analysts.

Does the new Republican majority have the political will to take on those tough assignments?

"We don't know yet," said Rep. Gil Gutknecht, R-Minn., a House Budget Committee member. "The new Republican members of Congress will be more conservative than those they replace."

As for overhauling Social Security, "the sooner the better," Gutknecht said. But he added that he "didn't know" if the White House and the GOP majority can settle on a single plan to overhaul Social Security and get it passed during the next two years.

"We're reaching the point when we're running out of excuses for not dealing with these problems," he said.

Gutknecht said the first test of whether the Republicans will have the political will to reduce the deficit comes on April 15, when Congress is scheduled to draw up a blueprint for federal spending.

The Congress now expiring never reached that goal. Nor did it pass the agency-by-agency spending bills needed to keep the government functioning in the fiscal year that began Oct. 1.

In the end it had to settle on the awkward device of a catch-all spending bill, in this case, for $388 billion.

The bill provided for cuts in spending that touched about one-seventh of federal spending. Congress did trim the shrinking portion of the budget that goes to such domestic programs as education, air traffic control and safety, aid to foreign nations for the development of democracy, housing, and energy and the environment.

But as large as those cuts were, that's not where the truly big money is.

"The cuts Congress made after the election, about $16 billion, are laughable when you look at the hundreds of billions in the deficit," said Norman Ornstein of the American Enterprise Institute.

"To get at the deficit in a meaningful way, you have to start by cutting Social Security and Medicare, and I don't see either the president or Congress stepping up to do that," Ornstein said. "Besides, if you change Social Security to a private savings plan, you have to find billions more to pay for the transition."

Republicans on Capitol Hill have been reluctant to get precise about what that they want to do with the entitlements. While Republicans merge on giving more opportunity to younger workers to set aside and control investments for retirement and health care, they haven't yet coalesced behind a single plan.

But Democrats and some independent analysts doubt that the GOP will hunker down to the politically unpalatable job of rolling back Social Security and Medicare, or finding new ways to pay for the entitlements.

To halt deficits that have pushed the national debt above $7.4 trillion "will take a crisis," said Rep. Robert Matsui, D-Cal.., a senior member of the tax-writing House Ways and Means Committee.

"That crisis is looming," Matsui said. "Unless we act immediately, we'll face a collapse of the housing market and consumer purchases as interest rates shoot up. We're already seeing signs of the crisis."

Robert Bixby, president of the bipartisan Concord Coalition, agreed.

"I'm not at all hopeful that we can get the economy back in order without a crisis," he said. "I don't see the political will to deal with Social Security and Medicare, to stop the tax cuts that are now on the books and to prevent additional tax cuts."

Democrats contend that if the federal government continues on it current path, the nation will be in jeopardy. "No nation has ever been strong, free and bankrupt," said House Minority Leader Nancy Pelosi, D-Cal.

The leading Democrat on the House Budget Committee, Rep. John Spratt of South Carolina, declared that "deficits are not simply a budget problem. They are also a moral problem, and we must take action to prevent passing this burden on to our children and grandchildren."

But Republicans sound much more bullish on the economy.

Rep. James Nussle, R-Iowa, the House Budget Committee chairman, said that a $413 billion budget deficit projected by the Treasury Department and Office of Management and Budget is a positive development because the figure is $108 billion below February estimates.

Further, the deficit is not as bad as it looks, Nussle said. He said the $413 billion deficit is 3.6 percent of gross domestic product, only "slightly higher" than last year's deficit. "By this measure, it is not even in the top 10 of our nation's largest budget deficits," Nussle said.

House GOP leaders particularly say they want to reduce discretionary domestic spending even more, and they talk about making the 2001 and 2003 tax cuts permanent. They also call for a new tax and simplified tax system that could reduce revenue to the federal treasury.

Congressional budget analysts say that the bottom may be near on the kind of cuts in domestic discretionary spending that Congress ordered in the omnibus budget package.

But the spending cuts ordered by the bill are not nearly as politically painful as rolling back Social Security and Medicare benefits, or the alternative of higher taxes or later retirement for millions of American workers.

The new cuts offer a preview of what needs to come if the president and Congress have the post-election political will needed to bring spending and tax revenue back into balance.

The Congressional Budget Office has warned that "substantial reductions in the projected growth of spending or a sizeable increase in taxes - or both - will probably be necessary to provide a significant likelihood of fiscal stability in the coming decades."

Federal Reserve Chairman Alan Greenspan has pressed the same warning on Congress.

The Heritage Foundation, a conservative think tank that often reflects the views of GOP congressional leaders, said that ever larger budget deficits are driven by "runaway government spending and the booming entitlements."

The foundation and GOP leaders dismiss the contention of Capitol Hill Democrats that the deficits are primarily caused by the tax cuts enacted during Bush's first four years.

In fact, additional tax cuts are needed to spur investment and economic development that will generate jobs and profits, and produce more revenue, they argue.

Republicans also argue that cutting taxes will increase pressure to cut government spending - a process known in some Washington circles as "starving the beast."

But that didn't happen after the president pushed a massive tax code through Congress in 2001.

"It is hard to believe that the tax cuts were effective in reducing spending, as spending has risen significantly in defense, non-defense, and entitlement categories," according to Brookings Institution analysts William G. Gale and Peter R. Orszag.

"I see much bigger deficits ahead," Ornstein said, pointing to the unwillingness of either party to put forward a plan that would stem the coming flow of red ink in Social Security and Medicare.