A Deficit of Fiscal Foresight

To borrow a phrase from a hot movie about an environmental disaster, President Bush risks fiscal meltdown by addressing the federal budget deficit as if there’s no day after tomorrow.

Even though already-enacted cuts will save an average of $109,000 in taxes for anyone with an income over $1 million in 2006, Bush is pressing Congress to make his 2001 and 2003 tax cuts permanent -- a move that would further inflate the deficit, which the Congressional Budget Office projects will hit $480 billion this year.

The White House’s obsession with more cuts makes the resistance to the plan by a small group of Republican senators, including John McCain of Arizona and Olympia J. Snowe of Maine, all the more remarkable. These lawmakers may not succeed in curbing the deficit, but they are shining a spotlight on it that Bush will be unable to evade during his reelection campaign.

The mischief began in May, when the House passed permanent tax cuts that would add more than $600 billion to the deficit over the next 10 years. McCain and other senators are foiling that plan by insisting that any future tax cuts be offset so as to have no effect on the deficit. That means if you’re going to cut taxes, you have to make a corresponding cut in spending, or raise taxes elsewhere to make up for the shortfall. So far, by demanding so-called pay-as-you-go rules, they have brought the budget process to a standstill.

The Bush administration seems to recognize that taxes can’t be reduced indefinitely without cutting spending. As a White House Office of Management and Budget memo leaked to the Washington Post reveals, Bush wants to cut proposed funding for almost all agencies in charge of domestic programs beginning in 2005. For example, veterans’ medical care would be cut by about $270 million in 2005 and by $1.6 billion in 2006 -- surely a strange choice in a time of war. In addition, student financial assistance, job training and education all would be slashed.

Contrast the $32 billion in tax cuts the administration is proposing for millionaires in 2006 with the $21 billion in savings the administration would realize by cutting domestic programs. Then there’s the effect of the Iraq war on the deficit. So far, Congress has appropriated $119.4 billion for Iraq -- and the administration plans to ask for at least $50 billion more.

The administration line on tax cuts is that they boost the economy, which increases federal revenue and reduces the deficit. Economists can debate the long-term validity of that theory, but over the short term it doesn’t take a PhD to see that tax cuts unaccompanied by spending cuts lead to deficits. Like Federal Reserve Chairman Alan Greenspan, who frequently warns about the perils of the deficit, McCain and other senators are right to give bad reviews to more debt that will choke long-term economic growth, burden a younger generation and impoverish the government.