THE DEFICIT HOLE

Manageable” is the Bush administration’s word for the federal deficit, now predicted to be $455 billion, twice what was assumed in February. Many other words will probably come to mind when Americans hear that the government is the deepest in the red it has ever been. Astounding, maybe.

There are conflicting reports about how the country so quickly went from record surpluses to record deficit. But

it is certain that three tax cuts and vast underestimations of the cost of the war in Iraq didn’t help the fiscal picture. That’s why Republicans need to modify their push for yet more tax cuts and limit any additional cuts to a bill that would extend an increase in the child tax credit to millions of low-income families, which were left out when the $350 billion stimulus package was passed this spring.

The tax cuts were supposed to stim-ulate the economy by putting more money into people’s pockets. While some economic indicators, like consumer spending, are up slightly, others, such as the unemployment rate, remain worrisome. The nation’s unemployment rate in June, 6.4 percent, was the highest in nine years. Since July 2000, the nation’s factories have cut 2.6 million jobs. The situation is not likely to be improved with a rising deficit, Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee last week. “There is no question that if you run substantial and excessive deficits over time you are draining savings away from the private sector, and all other things being equal, you do clearly undercut the growth rate of the economy,” he told lawmakers.

That’s because government borrowing eventually collides with private borrowing, pushing up interest rates. That means companies may put off borrowing money to expand and modernize their facilities and, ultimately, to hire new workers.

“I have nothing against cutting taxes,” Mr. Greenspan told the House Financial Services Committee a day earlier, “but a constituency must arise for cutting spending.”

While cutting taxes, the Bush administration has presided over large increases in government spending, primarily on the military and homeland security in the wake of the Sept. 11 terrorist attacks. Recently, Defense Department officials revised upward their figures for the war in Iraq, which is now slated to be nearly $4 billion a month. This money is not yet figured into the national debt. Such figures highlight why the United States should eagerly accept help from other countries in manning and paying for the rebuilding efforts in Iraq.

The rising deficit is, so far, a short-term phenomenon. But further tax cuts and huge military budgets could make it an unwanted permanent government feature.