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For the Record

Kerry's Dueling Promises on Economy

Position on Reducing Deficit Conflicts With Campaign Commitments

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, August 25, 2004; Page A08

Sen. John F. Kerry's pledge to reduce record federal budget deficits is colliding with an obstacle that may be growing higher by the week: his own campaign commitments.

A Washington Post review of Kerry's tax cuts and spending plans, in addition to interviews with campaign staff members and analyses by conservative and liberal experts, suggests that they could worsen the federal budget deficit by nearly as much as President Bush's agenda. If projected savings from unspecified cuts do not materialize, Kerry's pledges could outstrip those of the president, whom the Democrat has repeatedly accused of unprecedented fiscal recklessness.

The Bottom Line A Washington Post analysis of tax cuts and spending plans proposed by Sen. John F. Kerry indicates that, over 10 years, the federal deficit would rise under a Kerry presidency by nearly the name as it would if Bush were reelected.
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"I wish Senator Kerry was providing a starker contrast," lamented Leonard E. Burman, a tax policy analyst at the Urban Institute, who was a Treasury Department official in the Clinton administration. "The [Bush] policies with respect to the deficit are insane. They have to be reversed. But it will take presidential leadership to do it."

"You have to begin with the premise that the steps you need to take to reduce deficits are almost diametrically opposed to the steps you need to take to win elections," said Leon E. Panetta, Bill Clinton's first budget director. "You can cut spending and raise taxes or you can cut taxes and raise spending."

Bush and Kerry have chosen to do the latter, and would leave in place all or some of the tax reductions enacted early in the Bush administration.

Absent congressional action, those tax cuts will expire by 2011. Bush wants to make them permanent, a step that the Treasury says would cost about $990 billion over the next 10 years. Kerry says he would extend the tax cuts that benefit the poor and middle class. But he would allow rates to rise for the wealthy, generating about $565 billion in extra revenue.

That money, however, would be quickly consumed by a health insurance proposal that Kerry says will cost an estimated $653 billion, as well as a $200 billion education initiative. Other campaign promises include aid to state governments; increased funding for veterans' health care, homeland security, energy research and conservation; and job-creation tax credits. They would add anywhere from $358 billion to $658 billion to the bottom line, according to a review of Kerry campaign material and a recent study by economists Eric M. Engen and Kevin A. Hassett at the conservative American Enterprise Institute.

Kerry says he would offset the cost of those programs with cuts in federal contracting, some agriculture subsidies and "out-of-control administrative costs" in the government. Other savings would come from a revamping of the student loan program, a commission to cut "corporate welfare" and the elimination of some missile-defense and other military weapons programs. Assuming all those savings materialize, the tax cut and spending proposals could still add as much as $1.3 trillion to the deficit over a decade.

That total is close to the bottom line of Bush's plan, which could add about $1.35 trillion to the deficit. Along with the $990 billion tax cut extension, Bush has proposed health care tax credits worth $120 billion, energy tax credits worth $175 billion and an assortment of other tax proposals.

Those parallel numbers have become an embarrassment to Democratic economists, who have tried -- but so far failed -- to convince the Kerry campaign that its rhetoric on fiscal rectitude should be matched by substance.

"The deficit issue has just not been salient enough for Kerry to justify the pain required to address it in a political campaign," said one Democratic economist, who spoke on the condition of anonymity to avoid angering the candidate.

Some Democrats say they can defend Kerry's promises only by comparing them with Bush's first term, during which record surpluses turned to record deficits.

"We're faced with a choice between a president who has heavily mortgaged the country and who has no plan to deal with deficits except economic growth, versus an opponent who says he wants to do something about the deficit but whose numbers may not add up," Panetta said.

Bush campaign spokesman Terry Holt said Kerry's promises are far more profligate than the president's. By the Bush campaign's tabulations, Kerry would add $1.3 trillion to the national debt above where it would be under Bush's budget for the next 10 years.

Holt disputed any notion that a Kerry administration would find savings in such proposals as a "corporate welfare commission" or dramatic cuts to government overhead. "He's proposed a bunch of budget gimmicks that don't add up," Holt said.

Kerry campaign aides say such tabulations are unfair. Kerry has vowed that once in office, he would follow strict rules mandating that any new tax cut or spending plan be offset by revenue increases or equivalent spending cuts, said Gene Sperling, a Kerry economic adviser.

If savings cannot be found, programs will have to be jettisoned, Sperling said. "This is the first time I've ever seen a candidate say, 'Even my top priorities will be constrained by fiscal discipline.' "

In contrast, Bush has doggedly stuck to his massive tax cuts and costly energy plan, despite the changing budget outlooks, Sperling said, asserting that "the difference is night and day." Besides, if such tabulations are to include every campaign promise, Bush should be tagged with a Social Security reform plan that would cost at least $1 trillion over the first decade, said Jason Furman, Kerry's economic policy director.

The president has also proposed a dramatic, tax-free savings account with annual deposit limits so large that they would effectively end taxation of capital gains, dividends and interest for all but the very richest Americans. At $5.6 billion, the cost over the first decade would be small. But during ensuing decades, the cost could be as high as $50 billion a year, according to an analysis by the Tax Policy Center, run by the Urban Institute and the Brookings Institution.

Panetta offered another defense of Kerry: Do not believe all that he says. In 1992, Clinton pledged to tackle the deficit with some questionable proposals, Panetta said. Once in office, he stuck to that pledge far more strictly than the myriad campaign promises he laid out, pushing through a politically painful package of tax increases and spending cuts that helped bring the government into the black for four straight years.

"I didn't believe Clinton's numbers, either, when he was running," Panetta acknowledged. "But what was passed was not what he campaigned on."

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