Forget the lockbox. It's being replaced by the blank check. Rarely have federal budget priorities changed as swiftly as they have since terrorists crashed into the World Trade Center and the Pentagon. Instead of squabbling over budgetary minutiae, Washington has been focused on aiding victims and their families, cleaning up the rubble, and protecting against further terrorist attacks.
Now, as the catastrophes of Sept. 11 threaten to cripple the airline industry, dash consumer confidence, and further roil the stock market, political restraints on spending are all but disappearing. In the first week after the attacks, Congress allocated $40 billion in an emergency spending bill--borrowing funds from the Social Security trust fund surplus and effectively cracking the so-called lockbox. And the tapping of the trust fund won't stop there.
"SPIRALING." The airlines, shedding employees and travel schedules, showed up at the White House on Sept. 18 with a plea for $24 billion in bailouts, up from some $15 billion only the week before. They won't get everything they want, but as of Sept. 19, Congress was weighing a $17.5 billion package of loan guarantees and cash. "Since government took the action to shut down air service, government has to be part of making industry whole," says Representative Jim Oberstar (D-Minn.), ranking minority member of the House Transportation Committee. Besides the airlines, other damaged industries--including shippers, hotels, and insurers--could line up for bailouts. "[Requests are] going to keepspiraling," says Treasury Secretary Paul H. O'Neill (page 32).
Many policymakers--including Federal Reserve Chairman Alan Greenspan--are urging restraint. "We have basically opened the door for anything. This is a real danger," warns Representative Robert T. Matsui (D-Calif.). On Sept. 18, for example, Democrats backed off from their opposition to Bush's Star Wars research, slated to cost $8.3 billion in the coming fiscal year. So any serious Democratic challenge to the $100 billion missile-defense program will come later rather than sooner--or maybe not at all.
In fact, money is being appropriated faster than the White House can dish it out. The emergency aid package passed so quickly that the White House had to scramble to come up with a spending blueprint. The main worry: Washington could slip back to an era of fiscal profligacy and, ultimately, harm the economy.
The damage from increased government spending could also wipe out any remaining federal budget surplus, currently projected to be $173 billion in the fiscal year that starts in October. And with the country headed into recession, the surplus might not even materialize. Slow economic growth trimmed $46 billion from projected tax collections from April to July this year, and revenues could get worse. The last big recession, in 1981, quadrupled the deficit, to more than $200 billion, in just two years.
Besides all that, Republicans are dusting off tax-cut proposals such as a reduction in the capital-gains rate, a credit and faster write-offs for new-business investments, and relaxation of the alternative minimum tax for businesses. And Senate Budget Committee Chairman Kent Conrad (D-N.D.) is considering a tax rebate that would go to low-income workers who missed the $38 billion round of income-tax refunds this summer.
MORE TO COME. Then there are the lingering promises from last year's election campaign. The Administration wants $190 billion for an eight-year plan to bolster Medicare and pay for prescription drugs for seniors, beginning in 2004. Democrats would nearly double that. The Administration also wants to boost military spending by $198 billion over 10 years--by $18.4 billion in fiscal 2002 alone--an increase Democrats will now find hard to oppose. Also on the wish lists of both Congress and the Administration: reauthorization next year of a farm bill with a price tag of some $70 billion over 10 years. The tradition of passing yearly supplemental farm-relief bills could double that.
The White House insists it is maintaining long-term "budget discipline" even in the face of these new demands. But clearly, given the threat of future terrorist attacks and the likelihood of a recession, Washington is in no mood for talk about austerity and lockboxes.
By Paul Magnusson, with Lorraine Woellert and Howard Gleckman, in Washington
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