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Don't Mortgage the Future

February 02, 2003

President Bush began his State of the Union speech by declaring that he would not "pass along our problems to other Congresses, other presidents or other generations." The very next day, the Congressional Budget Office declared that the federal deficit would hit $199 billion this year, not including the effect of new tax cuts and the unknown billions it would cost to conduct a war with Iraq. That surely sounds like a multi-generational burden.

The administration argues that deficits don't really matter. Once the economy is stimulated, tax revenues will rise and -- presto! -- deficits will disappear. But it didn't happen for President Reagan, who left a mountain of debt behind. It won't happen for Bush either, especially if he continues to pin his hopes on long-term tax cuts. Not only are they a poor stimulus, they reduce government's ability to pay off debt when the economy does recover.

Rising deficits will put upward pressure on interest rates as Washington issues more bonds to keep up with debt payments. They will further squeeze government as the baby-boom generation starts to draw on Social Security and Medicare.

Certainly some deficit spending is necessary. National defense and homeland security required more funding after Sept. 11, 2001.

A shaky economy can also use a brief jolt of stimulation, including temporary tax rebates. Yet on top of 2001's $1.35 trillion in tax cuts and Bush's current proposal for an additional $674 billion, the administration is considering more.

The White House on Friday proposed new "lifetime savings accounts" -- much like Roth IRAs but on a larger scale. What goes into such accounts is after-tax money. But earnings and payouts are tax-exempt and under the proposal may be used for more than retirement or buying a house. Costs to the Treasury in lost revenue would be paid by -- you guessed it -- the next generation.

As grim as the Congressional Budget Office report is, it doesn't reflect reality. It assumes that the 2001 tax cut will expire on schedule in 2010, but Bush intends to accelerate those cuts and make them permanent. Then there's the cost of possible war against Iraq and reconstruction of that nation.

Rep. Charles B. Rangel (D-N.Y.), the ranking minority member on the Ways and Means Committee, has introduced legislation to freeze tax cuts until the volatile international climate stabilizes.

Moderate Republicans are more politely balking. Sen. Olympia J. Snowe (R-Maine) has told John W. Snow, now the Treasury secretary, that she would "err on the side of prudence." It is the side on which the administration should err, before it sends the country into trillions of dollars of profligate, unnecessary debt.

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