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Jewish World Review Feb. 26, 2001 / 3 Adar 5761

Morton Kondracke

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Bush should talk about long-term budget challenges -- PRESIDENT BUSH'S speech to Congress surely will set off a honeymoon-ending fight about taxes and spending. The question is, will Bush tackle the long-run challenges to the federal budget or just the immediate ones?

The battle ahead concerns the divvying up of an anticipated 10-year budget surplus of $5.6 trillion, especially the $3 trillion non-Social Security surplus.

What hardly anybody is paying attention to is that, without major reforms, all surpluses will disappear around 2019 and the nation will head back into deep debt. This could happen even sooner if politicians aren't careful.

The warning is being issued in graphic terms by Comptroller General David Walker, who said in an interview, "The country is experiencing something it never has before in its history, a period of significant surpluses followed by a demographic tidal wave that's going to swamp us."

The challenge caused by the retirement of the baby-boom generation means that "we've got to pay much more attention not just to whether we can afford something today but whether we can sustain it tomorrow," argued Walker, head of the Government Accounting Office, Congress' investigative arm.

Walker is taking no sides in the upcoming fight over whether Bush's $1.6 trillion, 10-year tax cut is affordable or how big a Medicare prescription drug benefit should be.

Instead, he's advocating caution in not over-spending estimated surpluses - but even more, he's pressing for broad-gauge debates about entitlement reform and about what Americans want government to do and how much they are willing to pay for it.

Last year, for instance, federal taxes accounted for 20.6 percent of gross domestic product, he said, the second-highest level in history. The highest was 20.8 percent in 1944, at the height of World War II.

However, without entitlement reform, taxes might have to rise to European levels (40 or 50 percent of GDP) to pay retirement and health care benefits for baby boomers while maintaining such current government functions as defense, education and law enforcement.

Even if Social Security surpluses are lock-boxed, by 2030 Social Security, Medicare and Medicaid would consume three-quarters of total federal revenues.

"Little room would be left for other federal spending programs," Walker recently testified to the Senate Budget Committee. "Some time during the 2040s, government would do nothing but mail checks to the elderly and their health care providers."

Law requires that retirement benefits automatically be cut as Social Security and Medicare trust funds become depleted, but Walker believes that political pressures will keep them up, straining other programs.

"I believe it is important," Walker told the committee earlier this month, "that Congress and the President look at budget choices today in the context not only of today's needs and demands but also of the long-term pressures we know loom on the horizon."

Chances are, though, that this won't happen. Bush called for Social Security and Medicare reform during the campaign, but these issues seemingly are being pushed down the road as he tries to win his tax fight.

Later, Congress is likely to debate Medicare in the context of how to provide a drug benefit, not how to restructure the program.

GOP tax strategy seems to be to quickly mark up an across-the-board rate-cut bill worth about $900 billion over 10 years in the House Ways and Means Committee and pass it in early March.

The bill reportedly will hold down costs by only making retroactive cuts for the lowest bracket of taxpayers, whose rate would fall from 15 to 10 percent.

Other cuts, such as reductions in the marriage penalty and inheritance taxes and expansion of retirement and health care credits, would follow in one or more later bills.

House-passed tax bills would be reassembled into a package in the Senate and debated as a reconciliation measure that requires only 51 votes to pass.

Although some moderate Republicans are nervous about the size of the tax package, even Democrats expect that Bush can persuade them to follow his lead on a matter of such make-or-break political importance.

Along with his tax proposal, Bush plans to unveil a fiscal 2002 budget that holds down overall spending to the rate of inflation -about 4 percent - while increasing spending for education and the National Institutes of Health.

Democrats will attack the spending plan, which will involve below-inflation increases in many departments, on the grounds that the tax plan requires "cuts" in spending. However, Bush can claim that he is just being prudent by restraining spending to ensure that surpluses actually develop.

Besides unveiling a 10-year plan, Bush ought to talk long term. He ought to start the process of entitlement reform that his predecessor, Bill Clinton, might have instituted but didn't.

He could borrow lines from the comptroller general: "Our short-term prospects look better, but the long-term outlook looks worse. Without change, demographics will overwhelm our surplus and drive us back into escalating deficits and debt."

That could get people's attention and even keep Bush on political high ground.

JWR contributor Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill. Send your comments by clicking here.


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