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The Budget: Make the Tough Choices


Iraq's impact on the budget deficit is starting to unhinge Washington. President George W. Bush's surprise announcement that he will ask for $87 billion in new money to fund operations in Iraq for fiscal 2004 means the deficit will shoot past $500 billion next year, heading toward a staggering $600 billion. Total budget deficits for the next 10 fiscal years, from 2004 through 2013, may be pushing $6 trillion or more. The final total depends in part on whether Washington can cut a deal in the U.N. to bring in European, Asian, and Middle Eastern countries to share the financial burden of reconstructing Iraq. The budgetary clock is running: The deficit is already approaching 5% of gross domestic product, a key political trigger point. The last time this happened, back in 1992, Congress was pressured to institute caps on discretionary spending. This time around, spending caps may not be enough. None of the choices ahead will be easy, but choices must nevertheless be made.

Certainly a strong recovery and a rising stock market will increase tax revenues. Today, federal tax revenues as a share of GDP are down to 16%, a 50-year low. They are sure to rise. But even the Congressional Budget Office, which is now led by a supply-sider, agrees that there is no way that the recent tax cuts can pay for themselves. The hope that "dynamic scoring" will solve the problem of making choices is gone. Higher economic growth won't generate enough revenues to balance the kind of budget deficits we see developing today.

The Baby Boom generation will start retiring in earnest in seven years, putting a huge drain on government finances precisely when the budget deficit is soaring. This means making choices is essential as the decade progresses. Some 80% of the budget is already cordoned off in nondiscretionary spending for Social Security, Medicare, military outlays, homeland security, and interest payments on the Federal debt. The rest goes for highways, education, farm subsidies, national parks, and numerous other things. Reining in the budget is all about what you get, what you give up, who benefits, who doesn't.

What is on the table? As the deficit mounts, there will be pressure to phase out the cuts in income and inheritance tax as scheduled and not make them permanent, postpone fixing the alternative minimum tax (AMT), back-burner the cuts in the corporate-tax rate, reduce the Medicare prescription drug benefit, and curb discretionary spending for highways, education, parks, and health. The cost of fixing the AMT alone is about $400 billion over 10 years. The drug benefit comes to about $400 billion. And making the 2001 income tax cut permanent will amount to $1.6 trillion over a decade. Something will have to give.

There are already indications that the White House and congressional leaders are trying to avoid making the hard choices by treating the request for an additional $87 billion for Iraq as if it were off-budget spending. This would allow them to not count it as part of the budget total. It's politics as usual in Washington, played by both political parties with vested stakes in their own partisan programs. And it epitomizes the failure of the nation and its political leaders to make the difficult choices needed if America is to avoid strangling its future prosperity on higher interest rates and burdening its children with enormous debts. Washington should reject the temptation to cheat on the budget, and the public should stop denying what is painfully clear. The time for choosing what people want and what they can afford is drawing very near.


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