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Congressional Republicans struggle with Bush agenda, debt worries

WASHINGTON—Stung by sticker shock, congressional Republicans are struggling to embrace President Bush's boldly ambitious and expensive agenda while avoiding the economic and political pitfalls of massive new debt.

The numbers speak for themselves: 10-year cost projections are $2.2 trillion to overhaul Social Security, $724 billion for the Medicare drug benefit, $1.1 trillion to make tax cuts permanent, untold billions to secure Iraq and Afghanistan beyond this year.

Republicans, who control both houses of Congress, are responding with a slew of suggestions, ranging from raising taxes and delaying some of the president's proposals to cutting spending more deeply than Bush proposes or simply hoping that the deficits decline over time. Their cacophony may never achieve harmony.

In the Senate, Lindsey Graham, R-S.C., is proposing an increase in the $90,000 salary cap that's subject to payroll taxes in order to pay for new personal investment accounts as part of a Social Security overhaul. Sen. George Voinovich, R-Ohio, wants to delay any move to make President Bush's 2001 and 2003 tax reductions permanent. Countless Republican lawmakers are chafing at Bush's suggestions that farm subsidies and urban-aid programs be cut.

Asked to address her concerns with the president's budget, Maine Republican Sen. Olympia Snowe cracked: "How long do you have?"

With their aversion to raising taxes, reluctance to cut popular programs and desire to meet Bush's goals, Republicans may end up unable to contain costs. Even if they trim spending on 150 programs as Bush has proposed, the resulting $20 billion savings would be dwarfed by the costs of his big-ticket items.

The deficit—which the White House projects at $390 billion in fiscal year 2006—is making some Republicans think twice about Bush's attempt to overhaul Social Security. The president's plan to allow workers born since 1950 to place some of their payroll taxes in private investment accounts would cost taxpayers about $2.2 trillion in its first 10 years of full operation, according to Social Security's trustees.

Bush's budget doesn't account for the costs of the war in Iraq beyond 2005. It also doesn't factor in any correction to the Alternative Minimum Tax, a provision of the tax code that, left unchanged, will force up to 30 million taxpayers to pay higher taxes by 2010. Members of Congress from both parties want to avoid that.

Some fear that the long-term financial consequences of future liabilities could damage the long-term political health of the Republican Party.

"Here's the danger for the party: The $43 trillion unfunded liability is going to show up here soon," Graham said. "The party who'll suffer the most ... would be us," because Republicans are supposed to be the party of fiscal responsibility, he said.

Graham has proposed that Congress cover the costs of overhauling Social Security by raising the cap on payroll taxes while lowering the current 12.4 percent wage-tax rate—which is split between employers and workers—on income below $90,000.

"Why not take the deficit argument off the table and do something we haven't done around here much: Pay for something," he asked.

Voinovich, a deficit hawk, is ready to oppose any effort to make the tax reductions permanent. He said "there's just too much uncertainty," citing already-big deficits, the escalating cost of the Medicare prescription-drug benefit and a new $80 billion price tag for this year's wars in Iraq and Afghanistan.

"To precipitously decide that we're going to make these (tax cuts) permanent at this stage of the game is not in the best interest of our country," Voinovich said.

Other Republicans reject Graham's proposal as a tax hike and worry that any delay in making the tax reductions permanent will bring back higher, Clinton-era tax rates.

Some Republicans are willing to live with the prospect of high budget deficits and rising national debt—for now.

"You always get some fiscal conservatives who express their frustration with the situation in terms of the deficit," said Michael Franc, a former top Republican congressional aide who's now a fellow at the Heritage Foundation, a conservative research center.

"But underlying that among conservative economists is the sense that lurking behind every plan to eliminate the deficit is an agenda for a tax increase. And that's more of a fear factor than the deficit per se. ... There's a point where conservative economists say that overall debt burden can become a problem. But their point of view is that we're really not close to that yet."

For now, many Republicans are arguing that deficits are like mortgages and that governments, like homeowners, can afford to carry some debt.

Sen. Charles Grassley, R-Iowa, the chairman of the Senate Finance Committee, calls it "thinking in terms of manageable debt." Grassley argues that when budgets are in surplus, government has a tendency to spend more. "So a little bit of manageable debt—and we've got too much—but a little bit of manageable debt is probably better public policy than running a surplus," he said.

That means reducing the deficit from 3.5 percent of gross domestic product today to about 2.2 percent, he said—a level that the president's budget proposal predicts by fiscal 2008.

Such predictions are based on forecasts of an improving economy. Indeed, despite the 2001 and 2003 tax cuts, revenue from taxes has risen—though it has shrunk as a share of GDP, which grew faster. Bush's budget predicts that government receipts will grow at an average 6.7 percent annual clip from 2006 to 2010, reducing the deficit to 1.3 percent of GDP.

"What the president understands is that we're giving the tax relief that is creating a growing economy, which helps the deficit, and now we have to look very hard at spending," said House Majority Leader Tom DeLay, R-Texas.

Where to look will preoccupy Congress for the next few months.

"We're going to have to figure out a way to live within the numbers," said Sen. Norm Coleman, R-Minn., "but not necessarily do exactly what the president says."

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(c) 2005, Knight Ridder/Tribune Information Services.

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