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Deficit Disorder

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By Robert J. Samuelson
Wednesday, May 11, 2005

Every two years the Congressional Budget Office publishes a fact-filled report called "Budget Options." This year's version is 343 pages, and flipping through it gives a quick tour of the federal government's far-flung activities. The Army Corps of Engineers spends about $800 million annually to maintain the inland waterways, the Office of National Drug Control Policy buys about $100 million in anti-drug ads and the Department of Transportation provides about $100 million in subsidies for "essential" air service to small communities.

The CBO surveys the federal landscape and, without taking any position, offers about 250 possible spending cuts or tax increases for those interested in balancing the budget. Among them:

· Stop making grants to states to promote "safe and drug-free schools" -- a $1.6 billion savings over the years from 2006 to 2010.

· Raise the top two income-tax rates (now 33 percent and 35 percent) by 1 percentage point each -- $17 billion higher revenue over the five years.

· Impose user fees on meat and poultry producers to cover the costs of federal food-safety inspections -- $3.8 billion in extra revenue from 2006 to 2010.

The report is, unfortunately, a waste of money. It has no audience. There's no one in Washington -- no one with power -- trying to balance the budget. President Bush's budget did not ever envision reaching a balance. The Republican Congress's new budget resolution purports to halve the budget deficit by 2010 but does so only on the basis of optimistic assumptions. In floor debate, the Democrats never offered a realistic balanced budget. The closest they came was in the House, where they promised balance by 2012. But that happens only by assuming that all of Bush's tax cuts expire in 2011 -- a position that even many Democrats reject.

Balancing the budget is simply too much trouble. It requires asking unpopular questions about who deserves help, which government programs actually work -- and how to pay for the rest. Plenty of programs could disappear without serious ill effects. Here are two of my regular favorites: farm subsidies and Amtrak. The CBO estimates that from 2006 to 2010 farm subsidies will cost $97 billion. If they were phased out, food would still be grown and the agricultural sector would still be viable. As for Amtrak, it swallows ever-larger subsidies to provide mediocre service for a small minority of travelers. In fiscal 2005 it's receiving $1.2 billion for carrying about 25 million people. By contrast, airlines carried 636 million domestic passengers last year. Without Amtrak Americans would still get where they want to go.

But no one wants to incur the bad publicity of taking anything away from anyone. Government programs, once created, become virtually immortal. The Bush administration made a halfhearted effort to end Amtrak subsidies. The administration is now backpedaling, and Amtrak wants $1.8 billion.

Almost any proposed spending cuts inspire outrage. Democrats love to flail Republicans as reckless, insensitive and greedy. Naturally it's easy to denounce the $10 billion in Medicaid cuts envisioned by the budget resolution. Actually, the "cut" would be trivial. It's spread over five years, when total Medicaid spending is projected at $1.1 trillion. If the cut occurs, it will be less than 1 percent. In this debate there is no moral high ground. To critics the Republican budget strategy is "starve the beast" -- cut taxes and use the resulting deficits as an excuse to squeeze spending. Agree or disagree, that's principled; it's a means to an end (smaller government). In practice, the real Republican strategy is more cynical -- cut taxes and feed the beast.

As a share of national income, federal taxes in fiscal 2004 were 16.3 percent, the lowest since 1959. Meanwhile, budget increases go well beyond defense and homeland security. Even excluding these categories and "mandatory" programs (Social Security, Medicare, etc.), federal spending has risen 4.8 percent a year (after inflation) under Bush, estimates Stephen Slivinski of the Cato Institute. That's the highest rate, he says, since Richard Nixon. In 2003 Bush proposed and Congress approved the biggest new spending program since Lyndon Johnson's administration, the Medicare drug benefit. It was all deficit financing; there was no new tax for any of it.

Gone is any sense of shame about overspending and undertaxing. For 2006 the budget is reckoned at almost $2.6 trillion, with an estimated deficit close to $400 billion. Bridging that gap would require Republicans and Democrats to do what neither wants -- scrub government of less useful spending and then raise taxes. Democrats prefer to deplore Republican "irresponsibility." Republicans prefer to tax less and spend more.

The resulting deficits aren't an economic calamity; if they were, they'd quickly be eliminated. But they preserve too many unneeded programs and allow interest payments on the growing federal debt to creep up. Both will make it harder to cope with rapidly rising retirement spending for aging baby boomers. A serious nation would prepare for that, but we have a deficit of seriousness.


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