Drunken sailor economics

Bush's bloated budget will likely put the U.S. over $1 trillion in debt. But criticize it, and the White House calls you soft on terror.

Published February 5, 2003 12:31AM (EST)

In a conference call with reporters Sunday before the arrival of President Bush's budget the next day on Capitol Hill, a certain Bush administration official made sure to point out to reporters that the Bush budget would be proposing a $470 million budget increase for the National Aeronautics and Space Administration, to $3.9 billion.

Almost a half billion dollar increase for NASA, announced one day after its worst space disaster since 1986? Not bad timing. Some conspiracy-minded Democrats on the Hill smelled a rat, though further poking revealed that the budget had been typeset and shipped to the printer weeks before.

But others weren't surprised by the NASA increase, since Bush hasn't shown much willingness to rein in spending. Which is why the big news behind his $2.3 trillion budget proposal is printed clearly in the report itself: "If the President's policies are enacted the federal government will run a deficit of some $304 billion this year" and $307 billion next year -- the largest deficit in U.S. history. The Bush administration now anticipates that deficits will continue at least through 2008, adding up to $1.1 trillion.

The once unplugged National Debt Clock -- the 11-by-26-foot Times Square electronica that details our leaders' irresponsibility -- is back on, and the numbers are getting big fast.

Moreover, say nonpartisan experts, there appears to be no plan -- other than hoping the economy will grow and revenues will increase -- to free the nation from that ever ticking burden. "What's significant about this budget is that it appears to abandon any particular fiscal policy goal," says Bob Bixby, executive director of the nonpartisan Concord Coalition. "It's a return of deficits as far as the eye can see and a president trying to justify why that's OK."

"It's truly remarkable: The president's budget doesn't ever balance. It's deficits forever," says Susan Tanaka of the bipartisan Committee for a Responsible Federal Budget (CRFB). In the analytic appendix of the budget, under (perhaps ironically) "Stewardship," the graphs indicate that over the next decade, the budget never gets balanced, she says. "There has been up until now a general political consensus that it's the right goal to aim for budget balance, if not year by year then at least over the business cycle."

The Bush administration has a simple, somewhat nasty response to anyone who questions its budget. In addition to $670 billion in proposed tax cuts, the budget proposes a $15.4 billion increase in the defense budget for next year, $30 billion for the Department of Homeland Security. Thus, on Monday afternoon, the acid-tongued Mitch Daniels, director of the Office of Management and Budget, told CNN's Judy Woodruff that "the deficit is one priority among many. Those who would make it the top priority have to step forward say what they wouldn't do. Would they not prosecute the war on terror?"

Such a snipe might make good TV, but it belies more complex budgetary issues. "You look at where the percentage increases are occurring in this budget, and all the increases are in defense and homeland security -- that's something we all support," says Sen. Kent Conrad, D-N.D., the ranking Democrat on the Senate Budget Committee. "But he's not cutting spending; he's increasing it. Tax cuts can be positive if they're offset by spending reductions. But he hasn't done that."

The White House seems to have two responses to this. One: It's not Bush's fault. "A recession and a war we did not choose have led to the return of deficits," Bush said in his official budget message. And two -- as stated near the top of the White House budget fact sheet -- "President Bush believes that the best way to hold down deficits is to promote pro-growth policies and control government spending."

On point one, even deficit hawks like Bixby acknowledge that because of the recession and 9/11, "the idea of balancing the budget in the short term is not doable." That said, Bixby underlines, "what's significant about this budget is all of its long-term proposals both on the tax and spending side. It says, 'These are the things we want to do, and if there are deficits as a result -- fine.' That's the significant switch here." Seconds Tanaka, "Yes, we have some real difficulties, but the economy will recover -- one would think there would be some attempt at some point to bring spending in line with revenues."

As for two, Tom Schatz, president of the conservative Citizens Against Government Waste, says: "It does not look like enough is being done to bring down overall spending levels. It's a big budget and there's still a lot of room to cut." In a recent statement, Schatz wrote that Bush and the GOP risk "appearing too cavalier about rising budget deficits and national debt" and may lose "the mantle of fiscal responsibility."

The size of the deficits came as something of a surprise. In July 2002, the year when deficits returned ($158 billion that year), the Bush administration estimated that the deficit would begin shrinking in 2003 and return to a $53 billion surplus in 2005.

Those predictions were obviously a bit off. Hundreds and hundreds of billions of dollars off.

The news has not been greeted warmly. At a Jan. 30 hearing, Sen. Don Nickles, R-Okla., chairman of the Senate Budget Committee, chastised the Congressional Budget Office and the Office of Management and Budget for their miscalculations. "CBO and OMB, everybody missed the estimates big time in '02," Nickles said. For the clean-livin' Don Nickles, that's practically a cuss-filled tirade.

Despite the cold, hard numbers, Bush's warm, lofty, anti-deficit rhetoric persists. Last year he spoke to leaders of the Fiscal Responsibility Coalition. "I've got a tool, and that's called a veto," he said. "I don't think that's going to be necessary, because I believe, in this difficult time for America, there's a common spirit on Capitol Hill, and one that we can promote and use for the benefit of the people."

There is no evidence, however, of any Capitol Hill kumbaya. In fact, pork barrel spending has only increased. And Bush's veto Mont Blanc has gotten little use; in 2001, President Bush signed a budget bill that amounted to 110 percent of his proposal.

More glaringly, during last week's State of the Union address, Bush said that "we will not pass along our problems to other Congresses, to other presidents, and other generations."

No doubt the president was referring to the pending military action in Iraq. But the budget notably refrains from factoring in any expenses for the anticipated war. Before he was ignominiously shown the door, former White House economic advisor Larry Lindsey pondered a cost of up to $200 billion for an Iraq assault. And according to a December 2002 study by the American Academy of Arts and Sciences, in a best-case scenario for the U.S. armed forces, the war will cost $121 billion while a longer war will cost $1.6 trillion.

"If we're going to go out and spend tens of millions of dollars on a war with Iraq, we really do need to cut in other places," says Schatz. "So why are we spending $500,000 on the Boathouse Museum in St. Charles, Mo., or $500,000 on the Tongass Coast Aquarium in Alaska, or a million dollars on bear DNA sampling in Montana?"

There are other glaring, and perhaps more consequential budget issues. The Concord Coalition's Bixby adds that the budgets also do not take into account direly needed economic reform measures that the administration had pledged to work on -- revamping both Social Security and the Alternative Minimum Tax.

The CRFB's Tanaka, a former nonpolitical employee of the Government Accounting Office and the Congressional Budget Office, seems both baffled and amused by other evidence of Bushian flair. The Bush budget proposes a renewal of PAYGO -- the budget rule adopted in 1990 and extended many times since, though it expired in 2002 -- which tries to ensure that budgets stay revenue neutral. "Pay as you go" requires that if a budget cuts taxes or increases entitlement spending above a certain level, one has to raise taxes or cut other spending so the impact is budget neutral. Bush's budget proposes reinstating that fiscally responsible rule, Tanaka notes, but he doesn't abide by it himself.

"His proposals add up to almost $2 trillion, but he doesn't say how would offset the cost of his own entitlement proposals," she says.

A later section of the budget sneers that a "common misconception (or distortion) is the suggestion that today's deficit is a consequence of the 2001 tax cut." The administration maintains that if the president's $1.35 billion tax cut of 2001 had never become law, deficits would have been even worse because the economy would have been even weaker. The matter is debatable, of course. Approximately 40 percent of the deficits are due to a loss of revenue caused by the tax cut.

In another section of the budget, the administration pooh-poohs the graveness of the situation. "By any measure, the projected deficit for 2004 must be judged as moderate," it states. "As a share of the economy (GDP), it would be smaller than in 12 of the last 20 years. Perhaps the best indicator of the deficit's current impact is the interest costs it imposes on the budget. Due to today's extraordinarily low interest rates, the carrying costs of outstanding debt will actually fall this year from $171 billion to $161 billion."

That may be true, but many economists believe that with deficits come higher interest rates. On CNN on Monday, OMB director Daniels argued that no correlation between the two had ever been proven.

Not that critics like Bixby think that the Democrats would do any better. "It's politically irresistible to attack the huge deficits coming under President Bush's watch," he says. "At the same time, they will accuse him of underfunding homeland security and Medicare and education and transportation and lots of other things, and they are reluctant to take him on about taxes. Were they in charge we might be still facing a similar situation."

Conrad, the Senate Budget Committee Democrat, angrily disputes this take, noting the massive $1.3 trillion size of the 2001 president's tax cut, and Bixby did note that the Democrats' current tax cut proposal is smaller and more front-loaded and that it "doesn't face the danger of a long-term fiscal drag" like the president's plan.

How will politics affect any of this? When asked if Democrats had strategized on how best to use the president's deficits as a political tool, Conrad said, "Uh, no."

But of more importance, in the short term at least -- since they do control the House and Senate -- is what Republicans on the Hill will do.

Back during the Clinton years, House Budget Committee chairman Jim Nussle, R-Iowa, for instance, once pledged not to run for reelection if that deficit weren't halved four years later. After he proclaimed his goal met, he bragged that it "took a Republican-led Congress to pull the purse strings tight on Bill Clinton, but Congress controls spending, and that's why I wanted to be on the House Budget Committee" -- to make "the tough choices, and we are reducing the deficit."

Now, however, Nussle has a different take on it all. Nussle says that "It is important to note that the circumstances that initially erased the surpluses and brought us into deficit are still present."

"That's what's scary," Bixby says. "There is little resistance to deficits on the Republican side now. People who you'd think would be cautioning are justifying them instead."

With baby boomers set to begin retiring in the next decade, Conrad seems most concerned about the effect this will have on retirement programs. "The head of CBO said last year that the effect of these proposals on retirement programs are these: unsustainable increases in debt, unprecedented tax increases, and/or the elimination of the rest of government as we know it. I mean, we're headed for a cliff and the president says, 'Full speed ahead!'"

"Hellooooo?" Conrad asks. "Is anybody listening?"

By Jake Tapper

Jake Tapper is the senior White House correspondent for ABC News.

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