Original story at: Washington Post
David Sadler For Congress 12th CD/Illinois

2003 Budget: Analysis Line on Fiscal Restraint Suddenly Hard to Hold
By Glenn Kessler
Washington Post Staff Writer
Tuesday, February 5, 2002; Page A01

The president's new budget plan marks the end of a sustained period of fiscal restraint, with the White House pushing for huge boosts in military spending, Congress rushing to defend popular domestic programs, and the public willing to let both sides bust the budget parameters of the recent past.

Before the Sept. 11 terrorist attacks, the administration might have paid a political price for proposing a deficit after the long, grinding effort by both parties to hack away at the federal debt. But Democrats spent January insisting that the president's tax cut was irresponsible, and they utterly failed to dent Bush's sky-high approval ratings.

Now, many seem ready to join the deficit parade, pledging support for a big military budget while vowing to restore Bush's proposed rollback of many social programs.

Before war, recession and Congress's embrace of the Bush tax cut wiped out much of the projected budget surpluses, lawmakers in both parties pledged never again to touch payroll taxes generated by Social Security and Medicare to fund other parts of government. The only exceptions, the president said, would be war or recession.

But his 2003 budget plan goes beyond invoking that escape clause. It calls for actual deficits to fund a $48 billion increase in military spending and a bevy of new tax cuts. It envisions an $80 billion deficit even while proposing -- in an election year -- an actual decline in spending for domestic programs not related to defense or homeland security.

The president's budget documents are filled with tough words about accountability and better performance by government agencies. But having already proposed a deficit, the administration will be hard-pressed to complain about Congress's profligate spending. That clears the way for bipartisan spending that will boost the deficit even more.

Rep. John M. Spratt Jr. (S.C.), the senior Democrat on the House Budget Committee, said an extra $16 billion or more is needed just to help Bush-targeted programs keep pace with inflation. The number is sure to go higher as lawmakers jockey to boost spending for popular programs -- such as highways and education -- that the president proposes to trim.

" Bush could have been in a stronger position if he had proposed a zero deficit, " said Chris Edwards, director of fiscal policy at the Cato Institute, a libertarian think tank. " He could have taken the moral high ground. But he's given a budget with deficits, and it will be harder to hold the line on spending. "

The administration fared poorly last year in its efforts to restrain spending, with Congress adding thousands of pork-barrel projects even after a White House campaign to halt the practice. In an election year, Congress again seems disinclined to heed the administration's pleas.

" It is quite unlikely in an election year, " said Robert D. Reischauer, president of the Urban Institute and a former director of the Congressional Budget Office. " This is an area in which elections are won or lost, and Congress will beef up areas where the administration has proposed significant reductions. "

White House budget director Mitchell E. Daniels Jr. yesterday suggested the administration was more interested in adhering to overall spending limits than fighting over particular programs. " We'd rather work this out within the limits that the president has suggested by being flexible about the purposes to which the money is put, as long as his basic priorities are funded, " he said.

The administration's decision to abandon the old constraints on spending the payroll tax surpluses is a significant change from the fiscal policy set in place by the Clinton administration and the GOP-controlled Congress four years ago.

Over the next 10 years, the administration projects that the budget will continue to eat into Social Security and Medicare payroll tax revenue every year, even if the budget overall returns to surplus. This means the goal of paying off the nation's public debt -- which a year ago appeared possible in the next five years -- has been indefinitely deferred. The failure to reduce the debt as planned will force the government to pay an additional $1 trillion in interest costs over the next decade.

Administration officials note that, when measured against the size of the overall economy, the proposed deficits are historically small -- less than 1 percent of the gross domestic product, compared with more than 6 percent at the highest point in the Reagan administration. Administration officials argue that renewed economic growth -- spurred on by tax cuts -- will help bring the budget back into surplus.

Some analysts also argue that relatively small deficits and surpluses are meaningless in an economy as large as that of the United States, and the political focus on deficits forces spending cuts or defers tax cuts in ways that are more harmful to the economy than the deficits themselves.

Budget projections, of course, are fraught with uncertainty and subject to frequent revision. The administration yesterday abandoned year-by-year projections over the next decade, arguing they were unreliable.

Congressional Democrats, however, suggested the numbers looked too grim in the later part of the decade.

But deep in the fine print of the budget books are a number of questionable assertions that, in other circumstances, might make the deficit much worse than projected by the administration.

The administration, for instance, predicts the budget will return to a small surplus in 2005. But that assumes that Congress agrees to the very tight caps on spending proposed for domestic programs not connected to defense or homeland security. The Congressional Budget Office, which last week released its own detailed estimates, suggests that if non-defense spending keeps growing at the same 7.6 percent rate of the past four years, then surpluses won't reappear at all for rest of the decade.

Meanwhile, the president is pushing to make his signature tax cut permanent beyond its current 2010 expiration date. But analysts were struck by the fact that the administration chose to leave out the one provision that would affect millions of taxpayers -- extending relief from the alternative minimum tax. Temporary relief from the minimum tax, included in the tax bill, expires in 2005, just when the administration says surpluses will return.

The administration concedes that without changes, 39 million taxpayers in 2012, compared with 1 million taxpayers in 2001, will have to pay the higher tax, which was originally aimed at the very rich. Virtually every tax analyst says this problem will have to be addressed soon. But fixing it will reduce federal revenue by more than $200 billion over the next decade -- and the president's budget already contains nearly $700 billion in tax cuts.

Over the next five years, in projections before policy proposals are taken into account, the White House also anticipates receiving $130 billion in higher revenue while spending $80 billion less on Medicare than projected by the congressional analysts. The forecasts are so tight over the next few years that such subtle disputes could mean the difference between deficits and surpluses.

2002 The Washington Post Company