BlogWood: MT Archives

GOP: The party of fiscal responsibility

After Bush Leaves Office, His Budget's Costs Balloon (washingtonpost.com)

For President Bush, the budget sent to Congress last week outlines a painful path to meeting his promise to bring down the federal budget deficit by the time he leaves office in 2009. But for the senators and governors already jockeying to succeed him, the numbers released in recent days add up to a budgetary landmine that could blow up just as the next president moves into the Oval Office.

Congress and the White House have become adept at passing legislation with hidden long-term price tags, but those huge costs began coming into view in Bush's latest spending plan. Even if Bush succeeds in slashing the deficit in half in four years, as he has pledged, his major policy prescriptions would leave his successor with massive financial commitments that begin rising dramatically the year he relinquishes the White House, according to an analysis of new budget figures.

Bush's extensive tax cuts, the new Medicare prescription drug benefit and, if it passes, his plan to redesign Social Security all balloon in cost several years from now. His plan to partially privatize Social Security, for instance, would cost a total of $79.5 billion in the last two budgets that Bush will propose as president and an additional $675 billion in the five years that follow. New Medicare figures likewise show the cost almost twice as high as originally estimated, largely because it mushrooms long after the Bush presidency.

The New York Times > Opinion > Editorial: The Importance of Being Earnest

Mr. Bush needs to convince foreign investors that he's serious about cutting the budget deficit. Here's why: Each day, the United States must borrow billions of dollars from abroad to finance its enormous budget and trade deficits. Without a steady stream of huge loans, the country would face rising interest rates, higher inflation, a dropping dollar and slower economic growth. The lenders want to see less of a gap between what the government collects in taxes and what it spends, because a lower budget deficit always eases a trade deficit. A lower trade deficit also implies a stronger dollar. And a stronger dollar would reassure foreign investors that dollar-based assets remain their best choice.

As it is, their belief is being sorely tested: in 2003, the European Central Bank lost $625 million to the weak dollar and reportedly stands to lose $1.3 billion for 2004. Japan's central bank, which has the world's largest foreign stash of dollars - some $715 billion - could lose an estimated $40 billion if the dollar weakened to around 95 yen, a level many analysts expect to see this year. No wonder that a week before Mr. Bush released his budget, Japan's finance minister said that Japan had to be careful in managing those dollar-filled foreign currency reserves.

It's not hard to see what brought the United States to this juncture. Mr. Bush's first-term tax cuts were too expensive and too skewed toward top earners to work as effective, self-correcting economic stimulus. Instead, predictably, they've driven the nation deep into the red. Having reduced tax revenue to a share of the economy not seen since 1959, the cuts are a huge factor in the swing from a budget surplus to a $412 billion deficit.
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Lately, Mr. Bush has been talking the deficit reduction talk, but there's no sign that he is willing to walk the walk. In his 2006 budget, he pledges to slash spending, but largely in areas that would have only a small impact on the deficit and where cuts would be politically difficult, not to mention cruel, such as food stamps, veterans' medical care, child care and low-income housing. Meanwhile, he is pounding the table for more deficit-bloating measures - making his first-term tax cuts permanent, at a 10-year cost of as much as $2.1 trillion; putting into effect two high-income tax breaks that were enacted in 2001 but have been on hold, at a 10-year cost of $115 billion; and introducing new tax incentives to allow high earners to shift even more cash into tax shelters, at a cost that would ultimately work out to more than $30 billion a year when investors cashed in their accounts tax-free.

Oh, yes. Mr. Bush also wants to borrow some $4.5 trillion over two decades to privatize Social Security, which is a bad idea even without the borrowing and a horrendous one with it.