New spending plans belie Congress's deficit worries

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Tuesday, May 25, 2010

ALL ACROSS the Western world, fiscal stimulus is starting to give way to fiscal consolidation. In London, the new British government has announced $8.6 billion in immediate budget cuts. In Paris, French President Nicolas Sarkozy is negotiating to raise that country's retirement age. In Madrid, Spanish civil servants are facing a 5 percent pay cut, followed by a wage freeze. Even Italy is talking about tightening spending. And don't get us started on Greece.

Only in Washington, it seems, is the long-awaited "pivot" to fiscal restraint nowhere to be seen. As the mid-term elections draw near, Congress is considering a passel of new spending, necessary and otherwise, most of which won't be paid for.

A package of tax and spending measures traveling under the title of American Jobs and Closing Tax Loopholes Act epitomizes the issue. The measure, hammered out between the Democratic leaders of the House and Senate, faces floor action in both houses before the Memorial Day recess. It includes certain long-overdue revenue-raisers, such as a shrinking of the egregious tax code provision that permits private equity fund general partners to pay taxes on much of their earnings at a top rate of just 15 percent, and a tightening of Social Security and Medicare taxation of the self-employed.

But the bill comes larded with millions of dollars worth of tax subsidies whose main economic impact is not to create jobs but to shift them from one place to another: an extension of Recovery Zone bonds; more breaks for biodiesel; and, our favorite, extended rapid depreciation for "motor sports entertainment complexes." On the spending side, the big-ticket items include yet another postponement of a scheduled reduction in doctor payments under Medicare, at a cost of $65 billion through 2014 -- the "doc fix." Then there's a six-month extension of federal Medicaid relief for state governments ($24 billion over 10 years), an extension of unemployment benefits ($47 billion) and an extension of health-insurance subsidies for the unemployed ($8 billion). These measures reflect understandable concern about the lingering impact of the recession. But tucked into the $1.5 billion agriculture disaster relief section of the bill are $21 million for a Hawaiian sugar cane cooperative and $75 million for America's hard-pressed chicken producers. These are national priorities?

Not every item has been "scored" by the Congressional Budget Office, but senior Democratic aides have told The Post that they expect the measure to cost almost $200 billion over the next decade. This is on top of a separate $60 billion measure to fund the war in Afghanistan, now before the Senate, to which the White House is trying to attach $23 billion in additional deficit spending to avoid layoffs of public school teachers.

With deficit anxiety rising in the electorate, there are signs that both the White House and the leadership in Congress are beginning to worry about the political costs of more red ink. House leaders are discussing a one-year budget plan that might cut more than Obama's proposed freeze on non-national security discretionary spending. But first, more dollars out the door.


© 2010 The Washington Post Company

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