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Q & A

Can Bush's plan for a balanced budget work?

February 11, 2007|Joel Havemann | Times Staff Writer

WASHINGTON — President Bush last week proposed a formula for balancing the federal budget by 2012. The following questions and answers explore whether his proposal can succeed.

Will the Democrats, who control Congress, agree to the goal of balancing the budget?

They already have. Last year, when they were the minority party, Democrats proposed eliminating the deficit in 2012. Their proposal died when the House and the Senate failed to agree on a budget.

Do Bush and the Democrats agree on the steps required to put the budget in balance?

There's the rub. Bush balances the budget with a host of spending cuts that the Democrats oppose. Moreover, the president has not counted certain looming expenses when he shows how the government can bring spending in line with revenue by 2012.

Such as?

War costs are potentially the most substantial uncounted expense, running about $160 billion or $170 billion a year. In his 2008 budget, Bush asks for $141.7 billion. But for 2009, he asks for only $50 billion. Beyond that, he has budgeted nothing for war costs.

How likely is it that there will be no war costs after 2009?

Not very likely. That's why the Congressional Budget Office has assessed the effect of two other courses, one in which U.S. troops are withdrawn rapidly from Iraq and Afghanistan and one in which withdrawal is more gradual. The first assumes a force of 30,000 remains in 2012; the second assumes about 100,000 troops in 2012. The cost of the first course would be $20 billion more than the administration budgeted for 2012. The second approach would cost $61 billion more -- exactly the surplus that Bush's budget projects for that year.

What about the domestic side of the budget? In the past, the president has counted on cuts from the gigantic benefit programs, such as Social Security and Medicare, only to have Congress reject them. Is that going to happen again?

The Democratic Congress has shown no enthusiasm for Bush's biggest money-saver: his proposed Medicare reforms, which would reduce reimbursements to healthcare providers and require upper-income seniors to pay more for insurance.

What about other domestic programs, such as health research, highway construction and aid to schools?

These programs have grown by less than the inflation rate under Bush, and his latest budget would freeze them until 2012. Congress is unlikely to approve that degree of austerity. If lawmakers allowed the programs to grow 2% a year, that would add nearly $50 billion in spending in 2012, nearly enough to throw the budget into the red all by itself.

The president has always been a tax cutter. Does he claim to be able to balance the budget in 2012 without raising taxes?

He does. Most notably, he would make permanent the tax cuts enacted in 2001 and 2003 that are slated to expire after 2010. These were the big ones: income tax rate cuts, marriage penalty relief, a bigger child tax credit, and tax cuts for dividends and capital gains. They would cost $211 billion in 2012.

How does the debate over the alternative minimum tax fit in?

The AMT, as it is known, is a parallel tax system designed to deny wealthy taxpayers many of the deductions of the regular income tax. The idea was to prevent the well-to-do from sheltering most of their income from the Internal Revenue Service. But Congress did not link the eligibility levels to inflation, leaving ever-larger numbers of taxpayers subject to the AMT. Bush's budget proposes to eliminate the AMT and offset it with another source of revenue. The trouble is, he doesn't identify that other source.

What would it cost to repeal the AMT?

The administration has not released an estimate of what repeal would cost, but the private Tax Policy Center has estimated $91 billion in 2012. If the administration had included that item in its budget, its $61-billion surplus in 2012 would have turned into a $30-billion deficit.

Can a Republican president and a Democratic Congress make the necessary deals to balance the budget?

Possibly. The last two big budget deals, under President Clinton and the first President Bush, were made at a time when at least one house of Congress was held by the opposition party.

But is a deal likely?

The journey has been a little bumpy. Republicans on the House Budget Committee put out a news release Thursday titled: "Democrats Lay Groundwork for Massive Tax Hikes, Inaction on Entitlements." That same day, Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, lit into Rob Portman, director of the White House Office of Management and Budget, for what he called the administration's unwillingness to look beyond the spending side of the budget in its budget-balancing exercise.

"I have laid it out in our budget very clearly why we believe that we do not need additional revenues to get to balance in 2012," Portman said.

"If both sides aren't prepared to compromise, there will not be resolution during this administration," Conrad shot back, "and that would be a tragedy."

joel.havemann@latimes.com

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