A DEAL RESOLVED

The best thing that can be said of the unusual congressional budget agreement reached yesterday is that senators stuck with it until they found a sensible compromise; the worst is that it lets the House act as if deficits don’t matter. The agreement ultimately will not provide the tax cut the president wanted nor the fiscal caution Democrats tried to achieve, but a deal between Sen. Olympia Snowe and Finance Chairman Charles Grassley of Iowa struck the best outcome possible.

Under the deal, the House will carry on assuming a tax cut of $550 billion over 10 years; the Senate will assume the cut is $350 billion. Eventually, the two sides will confer and agree on a number. That number, according to a promise from Sen. Grassley, will be no higher than $350 billion, which Republican Sens. Snowe and George Voinovich of Ohio have insisted on. Their votes, along with the votes of the bare Democratic minority and two Republicans who wanted no cut at all, stopped an ill-considered tax cut originally set at $726 billion.

The size of the tax cut is important because it is projected to increase the budget deficit, which would then grow worse as several large expenses come due just as the Baby Boomers begin looking for government services like Social Security and Medicare. When deficits grow, government can’t afford to also spend on these programs for seniors. Constraining government that way may be fine with some people, but it should not be fine with the recipient of Social Security, the local taxpayer who wants federal help with education costs or the veteran who has been promised health care. And any thought that this tax cut would generate enough economic growth to pay for itself ended unhappily recently after an extensive review of various economic budget models showed under the best circumstances only insignificant growth.

For 2003, the deficit for is expected to be around $300 billion plus costs for the war, a large but not a frightening number in such a huge economy. But the balloon payment for likely costs comes soon after and has the bad taste to keep coming back, year after year.

A recent study by Goldman Sachs looked at the deficit if the president’s tax plan passed, he passed a prescription drug program as intended, spending grew modestly and the inescapable problem of the alternative minimum tax, which will affect 10 million taxpayers in the next decade, was addressed. The result was a total of $4.2 trillion, counting the Social Security surplus. Without that surplus, the deficit climbs to $6.7 trillion.

That is why so many respected economists and so many member of Congress have urged no tax cut or, at the very least, waiting until after the war and rebuilding costs are known in Iraq and then approving short-term stimulus. This makes sense but won’t happen, so the Senate’s $350 billion, to which Sen. Snowe held fast against heavy lobbying by her party’s leadership, was the best deal around. Her willingness to stand up to highly critical comments and work to keep the deficit as low as possible was impressive.

Congress has a long way to go to complete a budget, but keeping the lower tax cut in the resolution will set the tone for spending. This week, after intense debate and thanks to Sen. Snowe, the Senate held off creating higher deficits that would have harmed essential programs for years.