Budget Jitters

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While the fight over filibusters proceeds apace—and some wonder whether Bill Frist really has what it takes to pull them off—Dana Milbank peeks into the backrooms of Congress and finds a few grown-ups still worried about the Bush budget disaster:

While Washington plunged into a procedural fight over a pair of judicial nominees, Stuart Butler, head of domestic policy at the conservative Heritage Foundation, and Isabel Sawhill, director of the left-leaning Brookings Institution’s economic studies program, sat down with Comptroller General David M. Walker to bemoan what they jointly called the budget “nightmare.”…

With startling unanimity, they agreed that without some combination of big tax increases and major cuts in Medicare, Social Security and most other spending, the country will fall victim to the huge debt and soaring interest rates that collapsed Argentina’s economy and caused riots in its streets a few years ago.

The thing is, I don’t really see an answer coming. If we want to avoid financial Armageddon, yes, taxes are going to need to go up. But who’s going to do that? Back in the 1980s, when we were facing a similar situation, Ronald Reagan had his hand forced by a Democratic Congress and raised taxes several times to stave off disaster, but even that couldn’t close the budget deficit. Then the first President Bush finally decided to do the grown-up thing and push through a tax hike in 1990 to help lessen the federal debt—but he ended up paying for it with his presidency, when the Grover Norquist crowd on the right revolted. Bill Clinton, of course, finally managed to steer the budget on a path towards sanity, but his 1993 budget measure had to pass through a Democratic-controlled Senate without a single Republican vote. The point here is that George W. Bush isn’t in Reagan’s situation, or his father’s, and certainly not Bill Clinton’s. He’s apparently under no pressure from Congress to close the deficit, and he’s certainly not receiving any grown-up advice about the issue—as Reagan eventually did.

The other thing to note here is that we don’t need to hike taxes and slash spending so drastically that we get the budget back into balance. As Max Sawicky has shown (pdf), all that matters is that we do enough to keep our debt-to-GDP ratio stable. If we want to keep our domestic programs growing at a healthy rate—as liberals would prefer and Republicans seem to end up doing anyway—that means bringing tax revenues back up to about 20 percent of GDP; they’re currently expected to sit at about 17 percent in 2005. That would be an unprecedented hike, although revenues of 20 percent, by themselves, aren’t some crippling figure (the post-1960 average is slightly above 18 percent; revenues for the previous business cycle were nearly 19 percent). Or, someone could figure out a way to bring our health care spending down to European levels. But something has to be done—there are few experts in Washington, liberal or conservative, who think we can just “stay the course”.

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