Friday, September 10, 2004

Remember the deficit

Boston Globe

Remember the deficit

By Scot Lehigh | September 10, 2004

IT'S A lamentable absence in campaign 2004: A serious discussion of the crippling debt this nation is accumulating.

"There are a bunch of goals about how we are going to cut the deficit in half, but no specifics on how we are going to do it," says former Commerce Secretary Peter Peterson, a leading deficit hawk and author of the newly published "Running on Empty," a cogent critique of the nation's fiscal situation.

That failure is worth contemplating during a week when we've just gotten our last pre-election look at the budgetary bottom line.

According to the Congressional Budget Office, this year's federal deficit will hit $422 billion, a record in dollar terms. Further, on our current course, the nation will still rack up a deficit of more than $300 billion in 2009 -- and will add $2.3 trillion in new debt over the next 10 years.

Actually, the 10-year estimate will in all probability be low. Congressional budgeteers assumed, for example, that all the Bush tax cuts will expire at the end of 2010, when few believe that will happen. Further, the campaign proposals from either John Kerry or George W. Bush would add markedly to the river of red ink.

"Relative to that CBO baseline, both Bush and Kerry add something more than a trillion dollars to the deficit," says Robert Bixby, executive director of the deficit-battling Concord Coalition.

When it comes to the Republican incumbent, that's largely because the budget office assumes the sunsetting of the tax cuts, while Bush wants to make all those tax reductions permanent. If you include Bush's proposal to let workers keep part of their Social Security in personal investment accounts, he would swell the debt by more than $2 trillion over 10 years, Bixby says.

Although Kerry would repeal the tax cuts for couples making more than $200,000 a year, doing so wouldn't slash the deficit, since the Democratic nominee would use the revenue to fund new social programs. Kerry has also pledged to reimpose budgetary rules requiring new programs to be offset with new revenues or cuts in other spending.

"But even if he did that, he would still be at the same place with regard to the deficit," says Bixby.

Still, William Gale, a Brookings Institution economist who specializes in tax and fiscal policy, gives Kerry an edge on fiscal responsibility.

The president started his term with a projected 10-year surplus of more than $5 trillion, Gale notes, only to have his policies help turn it into a projected deficit of almost $3 trillion over the same period.

"Bush has a proven track record of fiscal irresponsibility," he says. "Kerry is focusing on this as a theme, even if the choices one has to make when governing haven't been made yet."

From an equity standpoint, Kerry also does Bush one better. Kerry's most expensive single proposal is his health-care plan, which he would fund by repealing some of Bush's tax cuts. That plan would deliver significant benefits to working and middle class families.

The Bush tax cuts, by contrast, are skewed toward upper earners. According to a new analysis by the Urban-Brookings Tax Policy Center, the top fifth of households got almost 65 percent of the benefit, receiving an average tax cut of $4,669, while taxpayers in the middle quintile got an average break of $756.

And it gets even less equitable as incomes go up. The top 1 percent got a break of $33,864; the top half of one percent garnered $55,596; and the top one-10th of one percent received $170,459.

It's true, of course, that those taxpayers paid much more in taxes than taxpayers in the lower quintiles. But here's where an observation of conservative economist Milton Friedman's applies: A long-term tax cut is not a tax cut at all unless it is accompanied by long-term spending reductions. Rather, it is simply a deferred tax increase on future taxpayers, who must repay the borrowing required to finance today's spending.

So who will pay for a tax-reduction policy slanted toward the wealthy? "Our kids and grandkids," answers Len Burman, co-director of the center. And in any number of ways.

"It could be that they will face much higher taxes than we ever faced," Burman says. "They could also very well experience tremendous cuts in public services and very sluggish economic growth because of the taxes needed to pay off these obligations."

That's all the more reason why today's voters should demand a real discussion of our financial responsibilities to the future.