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Jewish World Review Sept. 29, 2005 / 25 Elul, 5765 Fiscal relief is there, if GOP finds the backbone By Robert Robb
http://www.JewishWorldReview.com |
President Bush and congressional Republicans are in a fiscal pickle of
their own making.
At this point, Washingtonian Republicans cannot make a credible claim to be
the party of fiscal discipline. For most of Bush's tenure, Republicans have
controlled both the executive and legislative branches of government. Yet
spending has increased twice as fast as it did under the divided government
of the Clinton years.
Republicans excuse this as resulting from the need to response to national
emergencies, such as the war on terror and now hurricane disasters. Yet
there are fiscal policy choices involved in how to respond even to true
national emergencies.
The Iraq war is on pace to cost at least a half a trillion dollars. The
increment of security purchased thereby needs to be compared to alternative
uses of the money. For the most part, Congress has turned the rest of
homeland security spending into just another subventions grabfest.
There are also fiscal choices involved in responding to Katrina and Rita.
People can be put back on their feet for a fraction of what Congress is
talking about spending on disaster response.
Until the hurricanes, the federal deficit was shrinking and Republicans
were preparing to extend Bush's tax cuts. But they have delayed a vote on a
permanent elimination or reduction of the estate tax and on extending the
lower tax rates on investment income. Some members are openly speculating
about postponing an extension of the Bush tax cuts even longer, and perhaps
even allowing some of them to elapse.
Discussions about the deficit suffer from the fact that the federal
government does not have a separate capital budget. It makes sense for the
federal government to debt finance major physical plant and equipment that
will be used for decades. That's not burdening future generations with our
bills; it's spreading the cost out over generations that will benefit from
the asset. It's also economically more productive, since it allows capital
to be deployed elsewhere that would be tied up in government under pure
cash financing of major physical facilities and equipment.
According to the Office of Management and Budget, the federal government is
spending over $180 billion this year on such assets. The federal deficit
for this year is estimated at about $330 billion. That means that even if
the federal government's finances were being soundly managed, it might very
well be borrowing at least half of what it is currently floating in debt.
Borrowing for current operating expenses should be avoided, which requires
cutting spending. House conservatives, spearheaded in part by Arizona
Congressman Jeff Flake and operating through the Republican Study
Committee, have produced a list of possible spending cuts called "Operation
Offset." It's an eye-opener.
The list totals nearly a trillion dollars in savings over 10 years. A
couple of cuts involve fundamental changes in major federal programs, such
as delaying the implementation of the Medicare drug benefit or converting
Medicaid into a block grant and then capping the federal contribution.
But most of the money comes from controlling subventions to state and local
governments for things that should be a local responsibility anyway,
reducing corporate welfare, and trimming or eliminating programs that most
Americans have never heard of.
From the study, about $700 billion in federal spending could be eliminated
over the next 10 years, and most Americans would never know the difference.
And that's without making fundamental changes in entitlement programs — a
longer-term fiscal necessity.
Yet congressional Republican leaders are claiming that meaningful savings
are impossible.
The tax rates put into effect by the Bush cuts cannot credibly be claimed
to be insufficient to adequately fund a fiscally responsible government.
Federal tax receipts increased last year by over 5 percent and are on pace
to increase by about 14 percent this year.
The tax cut extensions being delayed are important to private sector
capital investment, which has been a primary driver of the recent economic
recovery and expansion. As Alan Greenspan has noted, the markets are
currently assuming these cuts will be extended. It will have a chilling
effect on investment, and a deleterious effect on the economy, if the sense
develops that Republicans may flinch.
At the national level, Republicans have lost any claim to be the party of
less spending. But, until now, they could still claim to be the party that
better understands the interrelationships between taxes, investment and
economic growth.
If Republican spending indiscipline ends up jeopardizing growth-oriented
tax policies, Republicans will deserve to lose control of the national
government.
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JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
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Arnold Ahlert | |||||||||
