Feb. 1, 2008 – 9:12 p.m.
The slowing economy has put rising deficits back on Washington’s agenda just as the annual funding battle kicks off Monday with the release of President Bush’s fiscal 2009 budget proposal.
After three straight years of reduced red ink largely because of surging corporate tax revenue — which has now fallen off — the White House is expected to project a deficit in the $400 billion range for fiscal 2008 and 2009. That would be more than double the $163 billion in red ink from fiscal 2007.
Yet, it remains doubtful whether Congress and the White House will seriously tackle the deficit in an election year, when both parties are eager to spend money and cut taxes to get the sluggish economy moving. Agreement on budget issues beyond an economic stimulus package is unlikely as Democrats and GOP lawmakers maneuver to portray each other as incapable of minding the country’s fiscal matters.
“It will get a lot of talk because it will be very big, but I don’t say that means they are going to do something about it,” said Robert L. Bixby, executive director of the Concord Coalition, which advocates balanced budgets. “It makes a great thing for both sides to blame the other in an election year. The fact that an issue is getting a lot of attention doesn’t mean it is the subject of a lot of rational thought.”
In fact, the first major initiative in Congress this year has been to push through a $150 billion economic stimulus package, which will add to the deficit. Even budget hawks are not advocating that the cost of the package be offset initially, though they have expressed disappointment that lawmakers are not looking at offsetting it under pay-as-you-go rules over the next five years, after any stimulative effect is felt.
“I was disappointed that you waived PAYGO for this,” former Clinton administration budget director Alice M. Rivlin told the House Budget Committee during a Jan. 28 hearing on the stimulus package. “Making exceptions can be a dangerous habit.”
Democrats are already discussing assembling a second stimulus package later in the year that could focus on spending for infrastructure and aid for states facing a budget crunch because of the economic downturn.
Congressional Democrats and administration officials have said they will devise plans to balance the budget by fiscal 2012. The rising deficits will require them to at least debate some tricky political issues — such as how much to provide for health care, education and infrastructure projects — when putting together budget plans.
“The deficit has improved in recent years but it will get worse this year and that will carry into next year and that will make the job a bit harder,” said Democrat
The warning was echoed by Senate Budget Chairman
Bush’s $3 trillion budget proposal for fiscal 2009 would largely freeze spending for domestic programs and cut back on the growth of Medicare and Medicaid.
The rate of spending growth in the two big health care programs would be slowed by about $200 billion over five years, with $178 billion coming from Medicare. That is far more than Bush’s proposal last year to wring $66 billion out of Medicare as part of a balanced-budget effort.
Democrats were quick to criticize Bush’s spending plans.
But Republicans will get their chance to fire back when House and Senate Democrats release their balanced-budget plans in March as part of their budget resolutions. Republicans are sure to criticize the Democrats as tax-and-spenders if, as expected, the proposal does not include an extension of all of the 2001 and 2003 tax cuts (PL 107-16, PL 108-27).
The White House and Democrats are not expected to take on some politically charged issues when determining how they will balance the budget by 2012.
For instance, neither the president’s budget proposal nor the Democrats’ budget resolution is expected to fully account for the cost of the wars in Iraq and Afghanistan in future years. And both will likely assume revenue increases from the growing reach of the alternative minimum tax (AMT) after the next fiscal year, though neither party has any interest in allowing that to happen.
Democrats are considering using one legislative weapon at their disposal to bring the deficit fight to the president: the budget reconciliation process.
Democrats, particularly in the House, were frustrated last year that they abandoned their pay-as-you-go rule — which requires tax cuts or new mandatory spending to be fully offset — in legislation to temporarily keep the AMT from reaching further into the middle class.
The House had passed legislation to partly offset the patch with higher taxes on private equity managers and venture capitalists, but Senate GOP opposition scuttled that plan.
Democrats could use the budget reconciliation process, which prohibits amendments and prevents filibusters in the Senate, to move fully offset proposals such as patching AMT or preventing a cut in Medicare payments to doctors. This would allow them to take the deficit issue directly to Bush, who has pledged to veto any tax increases.
“We would like to show the Blue Dogs, for example, that we are not abandoning PAYGO and that we will use reconciliation if need be to require that AMT [patch] be extended a year but fully offset,” Spratt said.
An expansion of the State Children’s Health Insurance Program (SCHIP) is another reconciliation possibility that has been discussed, Conrad said.
Last year, Democrats were able to advance a fully offset SCHIP measure to Bush’s desk twice, but he vetoed both measures. Noting Congress’ tight election year calendar, Conrad said using reconciliation would speed up moving such legislation.
Yet, he and Spratt cautioned that no decisions have been made on what legislation would be targeted for the reconciliation process.