February 8, 2006
Running Away From Fiscal Reality
WASHINGTON -- Our annual budget debates, begun anew with President
Bush's proposed $2.77 trillion budget for 2007, have increasingly
become exercises in political theater. They certainly aren't intended
to bridge the gap between Americans' huge appetite for government
services and their fierce distaste for taxes. Someone has to choose
-- higher taxes, lower spending or some combination. But American
politicians are loath to choose. So we get an outpouring of partisan
blab that does little to clarify. Instead, clever politicians
of both parties devise self-serving delusions to justify their
On the one
hand, we have the Bush Delusion: He says he's promoting lower
taxes, but he's actually doing the opposite. Yes, he's cut taxes
like mad. In 2005, federal taxes were 17.5 percent of national
income (gross domestic product), lower than the 18.2 percent average
from 1965 to 2000. Bush wants all his tax cuts made permanent.
How can anyone claim his policies favor higher taxes?
the long run, tax levels reflect spending levels. There are practical
and economic limits on budget deficits. Because Bush has increased
government spending, taxes will ultimately have to rise to cover
the higher outlays -- not now, but perhaps in five to 10 years.
Some of Bush's spending increases (defense, homeland security)
were unavoidable. Others were not. By 2016, the new Medicare drug
benefit could increase the program's costs by a fifth, estimates
the Congressional Budget Office.
done little to offset these spending increases. Last year, he
recommended eliminating or cutting substantially 154 small programs
for a $15.8 billion savings; Congress acted on 89 of the proposals
for a $6.5 billion savings, which is about three-tenths of 1 percent
of total spending. Continual budget deficits further elevate future
spending by raising interest payments on the growing federal debt.
In 2003, interest costs were $153 billion; by 2010, Bush's budget
envisions them at $307 billion. Still, Republicans cling to the
illusion that Bush is permanently (not temporarily) cutting taxes.
to the Democrats. They, too, have their delusion. It's the Clinton
Delusion: that the Democrats are now the party of ``fiscal responsibility,''
because Clinton engineered the first budget surpluses (1998-2001)
since 1969. The reality is that those surpluses stemmed more from
good luck than Clinton's policies. Of course, that's not the way
it looks. The surpluses were sizable, totaling $559 billion over
those four years. In addition, federal spending as a share of
GDP dropped from 22.1 percent in 1992 to 18.5 percent in 2001.
How can anyone doubt Clinton's achievement?
didn't plan or predict those surpluses. They resulted mostly from
an unanticipated surge in taxes flowing from the economic boom
-- something that Clinton didn't create. As for lower spending,
that mainly stemmed from the end of the Cold War -- something
else Clinton didn't cause. From 1992 to 2001, defense outlays
dropped from 4.8 percent of GDP to 3 percent. Once budget surpluses
occurred, interest payments fell from 3 percent of GDP in 1996
to 2 percent in 2001. Elsewhere in the budget, there was little
Clinton didn't originally promise to balance the budget. In his
early years, he merely pledged ``deficit reduction'' -- Bush's
present policy. Clinton endorsed a balanced budget only in June
1995 after Republicans, then committed to ending deficits, captured
Congress. By 1997, Clinton and congressional Republicans agreed
on a balanced budget, with a target of 2002.
virtue of a balanced budget is that it compels choices. But choices
are precisely what President Bush and congressional Republicans
and Democrats dislike. They especially dislike the choices posed
by an aging society, whose spending commitments threaten to overwhelm
the budget. In 2005, Social Security, Medicare and Medicaid (the
three major programs serving the elderly) already constituted
40 percent of federal spending -- even before the first baby boomers
escape this impasse? Maybe. In his State of the Union address,
the President mentioned a new commission on entitlement spending
-- aka, the costs of the retiring baby boom. This could be a throwaway
line. But it could also suggest that the president actually wants
to do something and realizes that his early attempts have failed
(Social Security personal accounts) or made the problem worse
(Medicare Part D).
changes are clear: gradual increases in eligibility ages; benefit
cuts for richer retirees; some tax increases. Living longer, Americans
should work longer. The difficulty would be persuading the country
that these unpopular changes are necessary and just. For that,
the commission needs heavyweight bipartisan chairmen. The obvious
choices would be ex-Presidents Clinton and George H.W. Bush. A
plan with their approval -- and George W.'s -- would carry much
moral authority. Perhaps three presidents, each trying to improve
his place in history, could succeed where none has alone.
2006, Washington Post Writers Group
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