Thursday, November 17, 2005

Smash and Grab Budgeting

At the rate the Bush/Cheney cabal is increasing the military budget (in real terms we are looking at over $800 billion) and other “defense” spending, with massive amounts of borrowed money, I give the country about a year before we end up like Argentina in 2002 when its economy collapsed. So much for “fiscal conservatives”.--Jack

Smash and Grab Budgeting
http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1172577
by John S. Irons

It’s budget season in D.C. It’s that time of year when one gets to hear words like “Vote-a-rama!” and “PayGo” thrown about in casual conversation.
Of course you also hear much huffing and puffing about fiscal responsibility. But far from practicing responsible budgeting, the president and his Congressional allies have instead engaged in a form of smash and grab.

Smash…

In fact, the depth of irresponsibility is hard to overstate—in 2004, revenue as a share of GDP was at its lowest level since 1959, and the budget has swung from record surpluses to massive deficits in just a few short years.

And now, after five years of tax changes and fiscal deterioration that have resulted in a $319 billion federal deficit, right-wingers have developed a sudden and desperate need to appear fiscally conservative. They feel that slashing federal services will appeal to their anti-government supporters, and will thus help to restore faith in a leadership that has been shaken, in part, by the president’s free-falling popularity ratings. And they are using the federal budget process to fast-track these cuts through Congress.

The Senate last week passed $35 billion in cuts to federal services over the next five years, and the House is debating a package that contains over $50 billion worth of spending reductions. And it should come as no surprise that the cuts are coming from programs that serve low-income Americans who do not have as strong a voice in Congress as the special interest lobbyists. The so-called savings come from imposing new costs on Medicaid beneficiaries, and from cutting assistance for child support enforcement, student loans, and food stamps. While these reductions may seem to be “savings” to the federal government, they will mean more costs for many Americans—especially those already struggling to make ends meet.

… and Grab …

What is this money being used for? Supporters claim that the budget cuts are necessary to pay for Katrina-related expenses or to reduce the deficit. But the truth is that they will be used to finance yet more of the president’s failed economic and tax agenda.

Even before the savings appear, they will be spent to partially finance $70 billion worth of tax cuts, if Congressional conservatives get their way. Part of the Senate’s proposed tax package includes $12 billion to pay for capital gains and dividend tax reductions, fully half of which will go to those making more that $1 million a year. And nearly $30 billion will be used for a one-year band-aid to prevent the Alternative Minimum Tax (AMT) from affecting more upper- and upper-middle-income taxpayers.[1] The House version is likely to contain even more tax reductions for upper-income individuals.

… and Repeat.

And this is just the beginning. Congressional leaders are billing this as a historic attempt to cut back on government spending. However, the numbers belie any claim to fiscal responsibility: even the larger $50 billion spending cut proposal in the House of Representatives is a savings spread over five years.

That’s about $10 billion a year. Doing the simple math, that means that Congress would have to pass another 30 bills of similar size to bring the $300+ billion annual deficit down to zero (and they would have to forgo any companion tax-cut bills as well). So any claims to fiscal responsibility are grossly exaggerated.

Therefore, even if this package should make it through Congress, we should also ask what might be included in the next round of budget talks. The Republican Study Committee—a group of about 100 self-described fiscal and social conservative members of Congress—provided some insight in their recently released report called Operation Offset. The report was nominally to make budget suggestions for raising the $100-$200 billion needed to pay for hurricane aid and reconstruction. However, with $950 billion worth of cuts over the next 10 years, the document was much more about stating the long-run right-wing goals and priorities. While the report was quickly dismissed by many as not politically feasible, it is as clear a statement of these priorities as one can find.

Among other cuts, the report proposes dramatic reductions in support for health care, education, international development and peace initiatives, transportation infrastructure, and many other services and investments.

The proposal also calls for reducing funding for the Centers for Disease Control and Prevention by $25 billion. In the age of a possible avian flu pandemic, or a possible terrorist bio-attack, this one part of the proposal vividly illustrates just how short-sighted the anti-government movement can be. One can only imagine that if the proposal were written before Hurricane Katrina, there would have been a line to eliminate funding for FEMA and other disaster preparation.

Some selected proposals from the report:

Reduce aid for low-income health insurance through Medicaid by $250 billion

Shift over $200 billion of the cost of Medicare onto the nation’s seniors through increased premiums, cost-sharing, and co-pays

Level funding for peace-keeping missions, AIDS initiatives, the Peace Corps, and economic development

Eliminate the National Science Foundation Math and Science Program

Cut back on support for national parks

Eliminate the Energy Star Program

Reduce funding for air and rail transportation infrastructure

Cut back or eliminate domestic community and economic development

Eliminate school lunches for middle-income kids

Eliminate student loan aid for graduate students

Eliminate federal funding for Public Broadcasting

Eliminate funding for the arts and humanities

And many, many others

Actual budget bills that have been put forth in a more serious way have been tempered, for the time being, by moderate Republicans and a unified Democratic opposition, but this broader agenda will certainly not be forgotten.

We should not lose sight of the bigger picture. The president and his Congressional supporters’ policies have so mangled the tax code and the budget process that, as a nation, we are not even remotely close to fully funding our current national priorities, let alone developing the capacity for new investments to improve the economy and the health of the nation. Fiscal responsibility must include owning up to the fact that federal revenue is simply inadequate, and the tax changes of the past few years will impose a high cost on our children and grandchildren by leaving them with a massive debt to pay off, and by leaving them with a weaker nation.

To ensure that the debate will continue, more than half of the non-Katrina tax items in the Senate Finance Committee’s bill are temporary one-year extensions, and the rest expire sometime in the next five years.

On the bright side, we can always look forward to “Vote-a-rama” again next year.

John S. Irons is the director of tax and budget policy at the Center for American Progress.

[1] The AMT does need to be dealt with, but it should be done as part of a fiscally responsible reform package, not on an annual ad hoc basis.

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