BUDGET IN A RED STATE

The estimates of how many hundreds of billions in new debt are in the president’s budget matter only as a starting point for Congress. The administration’s $521 billion deficit in the next budget is the result of several factors – a war, a recession, excessive tax cuts. But the president makes matters even worse by not addressing costs he knows Congress must, such as adequate funding for the wars in Iraq and Afghanistan and, domestically, for transportation and the environment.

The president has cut revenues as a share of gross domestic product to their lowest levels in decades but he has not, and mostly cannot, cut costs to match. The result is what is being forecast: deepening debt that will be paid by the next generation of taxpayers. This is a burden on the nation’s economic future and a warning, as former Treasury Secretary Robert Rubin recently wrote, that the federal government could cause a “fundamental shift in market expectations and a related loss of confidence at home and abroad.”

In an election year, Congress is unlikely to be held to the strict limits on discretionary spending the president has proposed, equal to half the rate of inflation. Each member has home projects to deliver and most recognize that some of the spending cuts proposed by the president, such as the $300 million for vocational education programs, is a direct cost passed to states, many of which are already cutting their budgets to balance the books.

An equally important concern is what the proposed budget does not show: It projects only five years into the future, rather than the 10 years that was common in the 1990s. Long-term forecasts risk inaccuracy, but the approaching retirement of the Baby Boom population, beginning in 2011, makes those longer forecasts crucial to decision-making now. The administration’s reprojection of the costs of a Medicare prescription drug benefit, from $395 billion over 10 years to $530 billion, is an example of why the federal government needs to look ahead farther if it is going to once again eliminate the deficit.

Much, though not all, of the deficit spending can be traced to tax cuts, which were proposed as temporary when passed. The president would now make them permanent, which is not surprising. This time, however, he may not have as much support. Sen. Susan Collins, who supported the White House in the last round of tax cuts recently said that, with the size of the deficit, this is not the time to make all the cuts permanent. She would, however, consider making certain cuts permanent, such as the creation of the 10 percent tax bracket for low-income families, the elimination of the marriage tax penalty and the increase in the child tax credit.

Fiscally conservative Republicans are in a difficult position. They do not want to hand the president a loss over tax cuts, yet know they cannot afford what he has proposed. But from the beginning of the 2001 round of tax cuts, the GOP Congress has lived with the unreality, hoping that somehow the deficit wouldn’t rise to become an issue now.

It has, and though there are indeed some targeted tax cuts that should remain, the blanket permanency the president has proposed is unaffordable.