Idea of Deficits Grows on Lawmakers

It’s enough to make a tightwad weep.

While the nation has been distracted by war, Congress has glimpsed what it would take to bring the government’s deficit-ridden budget back into balance and said, in effect: Never mind.

House and Senate negotiators this week are expected to finish writing a federal budget blueprint that would forsake the GOP’s once-central commitment to eliminating the deficit -- at least any time soon. And congressional actions on other fronts provide an object lesson in how thoroughly members of both parties have thrown fiscal caution to the wind.

Democrats and Republicans alike last week scrambled to toss more than $3 billion in aid to the ailing U.S. airline industry as part of President Bush’s war budget. The parties are in a bidding war to boost homeland security funding. Even House Republicans, traditionally the fiercest of fiscal conservatives, have retreated from their leaders’ proposals to curb costly programs such as Medicare and farm aid.

Enough concern about the deficit persists that a coalition of Democrats and moderate Republicans is trying to scale back Bush’s tax cut from $725 billion over 11 years to $350 billion. But even that is an amount that would have been unthinkable just six months ago, a measure of how dramatically the budget debate has been transformed by war, economic slowdown and Bush’s leadership.

This may be the year in which Bush leaves his most lasting imprint on the budget. He is overseeing a watershed change in his party’s orthodoxy, abandoning the GOP’s decades-long preoccupation with reducing the size and cost of government. If Bush has his way, the result will be not just the brief interlude of deficit spending that his administration predicted a year ago, but deficits that will endure for years after the shooting stops in Iraq.

“The war’s aftermath will be quite short compared to the consequences of tax changes that we make now,” said Robert Reischauer, former head of the Congressional Budget Office.

Congress’ fiscal course is now being set in negotiations between the House and Senate over the annual budget resolution, which establishes spending and revenue targets for the fiscal year that starts Oct. 1. Although the measure applies only for one year, analysts project its policies for a decade hence to assess the longer-term effect.

Most attention has focused on differences over the size of the proposed tax cut. The House included the full $725 billion Bush sought for his economic growth initiative; the Senate trimmed it to $350 billion.

Even with its smaller tax cut, the Senate budget is projected to stay in the red until 2012, with a cumulative $1.1-trillion deficit over the next decade. If Bush’s proposals were adopted without change, it would create $1.8 trillion in deficits over the next decade, according to the Congressional Budget Office.

Either way, it is a dramatic change from two years ago, when the CBO projected $5.6 trillion in surpluses over 10 years. Even last year, budget officials viewed the return of deficits as a fleeting phenomenon. Now they are part of the fiscal furniture.

“It’s hard to get Americans to focus on the federal budget,” said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group. “While we were all looking the other way, the budget outlook has undergone the swiftest and largest reversal in our history.”

Critics warn that big, persistent deficits threaten to undercut economic growth by crowding out private investment with federal borrowing. They warn it will get ever harder to dig out of debt when the baby boom generation begins to retire in large numbers, putting an unprecedented strain on government resources. This has been the core of some arguments against a tax cut as large as Bush has sought.

“I’ve never been more concerned about the fiscal future than I am today,” said Sen. Kent Conrad (D-N.D.). The budget, he warned, “is heading us over the cliff of massive deficits and debt at the worst possible moment.”

The Bush administration argues that war, terrorist threats and the faltering economy are more pressing concerns than balancing the budget.

Reducing the deficit is a “high priority, but not the first priority,” said White House budget director Mitchell E. Daniels Jr. “The first priority is the defense of Americans and, beyond that, their economic well-being.”

White House officials also say the best way to cut the deficit is to spur economic growth -- precisely the rationale for Bush’s tax plan, they add.

And they note that current deficits, while large in absolute terms, are manageable when viewed as a percentage of the economy. The CBO estimates Bush’s 2004 budget would produce a deficit equal to 3% of the gross domestic product. The deficit was a higher percentage of the GDP in 13 of the last 20 years, with a peak of 6% in 1983.

Some congressional Republicans, however, are uncomfortable about the mounting deficits. Many were elected in the mid-1990s campaigning for a balanced budget. One of their achievements was the 1997 law that set the stage for the first balanced budget in a generation.

With that as their lineage, many conservative Republicans told House GOP leaders that they wanted this year’s budget to show some prospect for eliminating the deficit.

“It was very important to our members that we lay a road map to balance,” said House Majority Leader Tom DeLay (R-Texas). But the course of debate in recent weeks underscored how hard it is to navigate that path.

The resolution initially written by the House Budget Committee called for eliminating the deficit in seven years. But to do that, and still make room for most of Bush’s tax cut, the panel called for big domestic funding cuts, including $470 billion from such programs as Medicare, veterans benefits and farm aid.

Moderate Republicans rebelled, forcing GOP leaders to restore money for Medicare and veterans, whittling the savings to $265 billion. Even that may be hard to sustain, as the Senate resolution included no comparable action. And when House Democrats last week offered a nonbinding motion instructing budget negotiators to drop the proposed savings, it passed overwhelmingly.

In the Senate, it is moderate Republicans rather than conservatives who have been wringing their hands about the deficit. Three moderates joined a virtually united Democratic caucus in voting to scale back Bush’s tax cut to $350 billion. One of them, in a recent meeting of Senate Republicans, defended his vote as consistent with the GOP’s balanced-budget commitment.

“There are a few of us who ... still care about deficits,” Sen. Lincoln Chafee (R-R.I.) told his colleagues.

Most Republicans blame the deficit on excess spending; Democrats blame tax cuts; both are probably right.

When the federal budget went into the black in 1998 after almost 30 years of deficits, lawmakers in both parties saw it as a green light for spending. The government’s discretionary spending has jumped an average 7% a year since then, according to the Office of Management and Budget. Lawmakers say the Sept. 11 terrorist attacks accelerated this trend, as money was poured into defense programs and domestic security efforts.

“Right after 9/11, it was: ‘Anything goes,’ ” said Rep. Robert T. Matsui (D-Sacramento).

The administration, meanwhile, has pressed forward repeatedly with tax cut proposals. Congress quickly passed Bush’s initial cut -- $1.35 trillion over 10 years -- in 2001, at a time when the budget was swimming in surplus. Not long after, the surplus vanished -- drained by the tax cut, the economic downturn and fallout from the terrorist attacks.

Democratic critics say the 2001 law was an act of fiscal recklessness that is a principal cause of today’s deficit; Bush and his allies argue that the economy and deficit would be in even worse shape if not for the tax cut.

Still, even Democrats began proposing further tax cuts late last year as the economy stubbornly refused to recover. As recently as December, lawmakers were discussing tax cuts of $100 billion to $200 billion to stimulate the economy.

In a surprise, Bush in January unveiled an economic stimulus plan calling for tax cuts that soon were estimated to cost $725 billion over 11 years. He has since called for other cuts, bringing his total tax relief program to $1.6 trillion.

The result has been to transform the boundaries of congressional debate. The $350 billion tax cut that a few months ago would have seemed large now looks puny to many lawmakers. Although passage of the smaller tax cut may be a setback for Bush, it would be far more than appeared possible last year.

“The ground has moved,” said Rep. Rob Portman (R-Ohio). “People who are against tax relief are resigned to the fact that there will be significant tax relief. The question now is how it will be allocated.”