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The $3 Trillion Cop-Out

By Robert Samuelson

WASHINGTON - The $3.1 trillion budget submitted last week by President Bush with a projected $407 billion deficit for 2009 reminds us of the huge gap between uplifting political rhetoric -- including the rhetoric of this campaign -- and the grim realities of governing. Budgets are not just numbers. They express political choices. What should government do and who should pay? The reigning philosophy, practiced by both parties and largely approved by the public, is to evade choices.

Since 1961, the federal government has run deficits in all but five years. Only the surplus of 1969 stemmed from deliberate policy: a 10 percent income surtax reluctantly passed by Congress in 1968. The others (1998-2001) mostly reflected good fortune: the end of the Cold War, resulting in a 40 percent drop in defense spending as a share of the economy, and an unexpected surge in taxes from the economic boom. Neither was a policy act of the Clinton administration or the then-Republican Congress.

Bush says his policies would produce a balanced budget by 2012, but his underlying assumptions are laughably artificial. First, he omits most of the future costs of the Iraq War (for budgeting, he effectively adopts his critics' plan of rapid withdrawal). Second, he assumes big savings in Medicare by freezing reimbursements to doctors and hospitals -- a policy Congress won't adopt. Third, he doesn't offset the growing revenue bite of the "alternative minimum tax" (AMT) that would result in a sizable tax increase: an outcome Bush rejects.

The only way Bush could balance the budget would be by not following Bush's policies. The most telling figures in his budget involve his proposal to eliminate or dramatically reduce 151 programs, for savings of $18 billion. That's six-tenths of 1 percent of federal spending. What's telling, though, is that Congress will probably reject even many of these proposals.

Based on campaign policies, none of the major presidential candidates would do much better. Sen. John McCain, the Republican front-runner, and Democratic rivals Sens. Hillary Clinton and Barack Obama are alike in not addressing the central budget issue: baby boomers' retirement costs. Already, Social Security, Medicare and Medicaid are 44 percent of federal spending. In 2007, these programs cost $1.2 trillion, more than double all defense spending.

McCain says spending will have to be cut but doesn't say where. He would eliminate the AMT and cover the costs by curbing congressional "earmarks" (spending projects designated for specific districts) and closing tax loopholes, says economic adviser Douglas Holtz-Eakin. McCain's overall goal is to balance the budget by the end of his second term, says Holtz-Eakin. That would be 2017.

Clinton and Obama haven't said when they'd balance the budget. But each has a long list of new spending increases and tax cuts. Both have health-insurance proposals intended to cover the 47 million uninsured. Clinton says her plan would cost $110 billion. Half would be paid by raising taxes on those with incomes exceeding $250,000, something that Obama would also do. Obama would provide a permanent $500 tax cut for about 150 million workers, or $1,000 for a two-earner family; he would also exempt from income tax retirees making less than $50,000. Both would provide more-generous tax credits for college. Their lists run on.

Both campaigns insist that all their new proposals are "paid for" through tax increases, closed loopholes, reforms of government contracting and various assumed "savings." It seems doubtful that this claim would survive strict scrutiny. But even if it did, neither candidate offsets the spreading AMT. Possibly, savings from withdrawing from Iraq might cover some of those costs. Still, sizable budget deficits would continue.

But most Americans don't seem bothered. That's why both parties devote so little effort to addressing government spending or the deficits. As a society, we seem to have made a choice. It is to not control government. Almost every new spending plan or tax cut is simply piled atop previous spending programs or tax cuts. Democrats have spent seven years denouncing Bush's tax cuts but are willing to repeal only the cuts benefiting those with incomes above $250,000. When Republicans created the Medicare drug benefit (2007 cost: $41 billion), it was simply added onto existing benefits.

Government acquires more functions, because no one dares strip away any existing functions. People, states, localities and industries think they have a moral entitlement to their tax breaks, benefit checks and spending programs. There is an unstated presumption that the gradual growth of government is unthreatening to the economy, but as the population ages, taxes, budget deficits or both will rise. The increases could be substantial. The fact that we are not debating the possible consequences is a cop-out -- but it is a cop-out in which the public is conspicuously complicit.

Copyright 2008, Washington Post Writers Group

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