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Tue, Nov. 12

Do the math – it's spending that balloons the deficit

WASHINGTON – Senate Majority Leader Tom Daschle and his Democratic warriors continue to attack the president for the budget deficit, blaming Bush's tax cuts for hurting the economy.

The truth, of course, is that the deficit is the result of a temporary slowdown in the U.S. economy, which has reduced tax revenues. They may even be helping the economy in the interim because of a little pump-priming spending.

Debate about the federal budget deficit's impact on the economy has been continuous, and no one has reached consensus on whether the deficit has had any economic effect at all. The deficit soared to record triple-digit heights as a result of the 1981-82 recession. However, the Reagan economy roared back in the last half of the 1980s.

During that tax-cutting decade, the stock market climbed sharply, unemployment fell to nearly 5 percent, and tax revenues rose, as did federal spending – ballooning from $600 billion a year to over $1 trillion.

On the other hand, the government enjoyed budget surpluses as we entered last year's recession. So any effect a budget deficit, or the absence of it, may have on the economy is dubious at best.

The Congressional Budget Office reported at the end of August that this year's deficit will be about $157 billion. What caused it? Consider this:

"By the end of the summer, with additional months of data in hand, it appears the economic slowdown has resulted in a revenue falloff of more than $100 billion in 2002," says the Senate Budget Committee's Republican staff in its weekly Budget Bulletin.

"Combining this with the $50 billion effect of economic stimulus legislation enacted in March to address the slowdown (along with the $6 billion effect of the recent 2002 supplemental) explains nearly all of the change in CBO's 2002 budget outlook," the report said.

CBO expects little improvement in next year's deficit, which will be about $145 billion. But as the economy recovers, corporate earnings rise, and the stock market turns bullish, which it eventually will, tax revenues are going to rise. We will have surpluses again, but only if we manage to keep spending under control. That's where the real fight in Congress is going to take place this fall.

It is interesting that Daschle and his friends talk endlessly about the deficit but rarely utter a discouraging word about the spending that contributes to the deficit. The reason, of course, is that while they presumably hate deficits, they love spending. They are addicted to it. And that's the problem that he and his colleagues do not want to face.

"Congress is in the midst of an unprecedented spending binge," Republican Sen. Phil Gramm of Texas wrote in a letter to his colleagues on Aug. 29.

"Since 1998, federal discretionary spending has increased on average by nearly 7 percent every year, growth unseen since the late 1960s," Gramm said.

"Excluding the emergency spending as a result of Sept. 11, federal spending is increasing almost four times as fast as inflation, and 50 percent faster than median family income," he said.

Every appropriations bill has risen at least twice the rate of inflation, and "several have increased as much as five or six times the inflation rate," he said.

If the appropriations bills over the past five years, excluding the emergency spending to respond to the terrorist attacks, had tracked with the rate of inflation, or even a little above it, we would probably have budget surpluses today.

There is more than enough money in the $2 trillion annual federal budget to defend our country and protect the national welfare and do it in a fiscally responsible way without repealing any of the Bush tax cuts, as several Democratic leaders are now proposing.

In fact, this is exactly what the House did earlier this year when it approved a fiscal 2003 budget plan that pays for the war against terrorism and doubles the money we spend for homeland defense. And it does so with a moderate 3.5 percent increase in discretionary spending.

Now, you would think that with all of the complaints that Daschle has made about "fiscal responsibility" and the president's budget deficit, that his first priority this year would have been to enact a budget bill to put some restraints on spending.

But nothing remotely resembling a budget has come up in the Senate this year. With so many of his Democratic colleagues calling for budget increases over and above current spending levels, the Democratic majority leader concedes that he does not have the votes to approve a budget.

So, the next time you hear Daschle ranting and raving about Bush's budget deficit, remember the old trick in the carnival shell game. He hopes we'll keep our eyes fixed on the deficit so we won't notice the irresponsible increase in spending.

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