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Fiscal Phonies

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By Robert J. Samuelson
Wednesday, November 2, 2005

The scramble by congressional Republicans and White House officials to show they're serious about dealing with the budget recalls the classic 1951 novel "The Catcher in the Rye," whose main character, Holden Caulfield, denounces almost everyone as a "phony." Well, on the budget, most Republicans are phonies. So are most Democrats. The resulting "debates" are less about controlling the budget than about trying to embarrass the other side.

Anyone who's serious about curbing federal spending and budget deficits could fashion a plan that would do both without eliminating one penny of existing government benefits or raising any existing tax. Here's how:

First, you'd repeal the Medicare drug benefit, scheduled to take effect in 2006. For the next five years (2006-2010), the savings would total about $300 billion, estimates the Congressional Budget Office (CBO). Preserving an existing drug benefit for low-income recipients might reduce savings by 5 percent.

Second, you'd repeal a tax cut scheduled for 2006 that would benefit mainly people in the top brackets (taxable incomes exceeding $182,800 and $326,450 for couples in 2005). These groups have already received big tax cuts; the new reductions involve repealing limits on deductions and personal exemptions. The 2006-2010 savings: about $30 billion, estimates the Tax Policy Center of the Urban Institute and Brookings Institution.

Third, you'd eliminate all "earmarks" in the recent highway bill. These are projects targeted by congressmen and senators for their own districts. The highway bill contained $24 billion in earmarks, says Citizens Against Government Waste, a watchdog group.

Not counting lower interest payments on less federal debt, this package would probably save more than $300 billion from 2006 to 2010 -- still not enough to eliminate prospective deficits. Its chances are close to zilch. Some senators have offered a milder version: Suspend the drug benefit for two years; leave taxes alone; make some other spending cuts. The five-year savings: $130 billion. So far only eight Republicans support it. Countless Democrats and Republicans routinely denounce deficits, but few will repeal a program that relies on literally trillions of dollars of future borrowing.

What have Republicans actually done? Last week the Senate Budget Committee endorsed spending "cuts" of $39 billion. That covers five years when total federal spending is projected at $13.8 trillion. So the "cuts" amount to a mere 0.3 percent -- one-third of one percent -- of projected spending.

But wait. Many advertised "cuts" aren't cuts at all. In weird budget accounting, they're "offsetting receipts" -- extra income that offsets spending. There's $10 billion from government sales of radio frequency spectrum to telecommunications firms. There's $5.4 billion from higher insurance premiums to the Pension Benefit Guaranty Corp. And there's $2.5 billion in royalties from opening the Arctic National Wildlife Refuge to oil and natural gas drilling. Whatever their merits or demerits, these proposals aren't spending cuts.

It also turns out that the $39 billion in "cuts" (the informal House target is $50 billion) probably won't reduce the budget deficit by that amount. As Democrats gleefully note, Republicans also pledge to cut taxes by $70 billion from 2006 to 2010. The overall effect would be a slight rise in deficits.

And Democrats? More phonies. They rant about President Bush's irresponsible deficits, which they blame on his tax cuts for the rich. For almost any budget question, the Democrats have the same answer: Repeal tax cuts for the rich. As politics, this pitch is fabulously seductive. Aside from the top 5 percent, it spares everyone. Its only problem is its deceit.

When Bush became president, the two top income tax rates were 39.6 percent and 36 percent; now they're 35 percent and 33 percent. Okay, let's restore them to their pre-Bush levels. From now until 2010, the extra revenue would average slightly more than $30 billion a year, the Tax Policy Center estimates. That won't cover the Medicare drug benefit, let alone projected deficits. By current CBO estimates, these will average $320 billion annually between now and 2010. Sure, you could squeeze the rich for a few more billion by repealing some other tax cuts, but the central point would remain: There's a basic mismatch between the existing taxes and existing spending commitments.

Neither party yet faces this candidly, because the only way to solve it is either to raise taxes or cut benefits. The point of the budget plan I sketched at the outset is to show that even cuts to programs that haven't yet taken effect stand little chance of passage. Worse, the mismatch will only grow as baby boomers age and qualify for Social Security and Medicare. Practical politicians like to confer benefits and tax cuts, not withdraw them. They don't like the discipline of inflicting pain (taxes) to distribute gain (benefits).

It's necessary to defend the inconsistencies. Republicans often justify tax cuts as a way to control spending -- "starve the beast." Government won't spend what it doesn't have. But Bush discredited that theory by both cutting taxes and raising spending. Democrats embrace class rhetoric and a self-serving mythology -- only they are "responsible" on the budget. Look (they say) at the surpluses achieved by Bill Clinton, from 1998 to 2001. The trouble is that those surpluses resulted largely from events beyond his control: the huge tax windfall of the tech and stock market booms, and the end of the Cold War, prompting much lower defense spending.

But who cares about the truth? For most politicians, the real problem is to appear principled even when they're not. If that's not phony, what is?


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