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| FINDING MONEY FOR KATRINA | |
 September 20, 2005  | |
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With mounting costs for the Hurricane Katrina clean up falling into the hands of the federal government, politicians began arguing about finding a way to pay for the bill. Following a background report, two guests discuss the economic implications of paying for Katrina.
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KWAME HOLMAN: President Bush has promised to rebuild the devastated Gulf Coast with one of the costliest reconstruction programs in history, estimated at $200 billion or more. Among the specifics, the president has proposed $2 billion in incentives to bring businesses back to the region, another $2 billion to cover the cost of educating more than 370,000 students displaced by the storm, and $5,000 recovery accounts for each job seeker in the disaster area. Congress already has approved $62 billion, the bulk of it going to FEMA operations. More emergency money is expected to be approved next month. The rising estimates have set off a fierce debate among lawmakers over who will pick up the tab. Today Senate Majority Leader Bill Frist said several options are on the table. SEN. BILL FRIST: Offsets, potential across-the-board spending cuts, looking at legislation we passed in recent weeks, month and even years as to where we can appropriately cut. SEN. BILL FRIST: Here in New Orleans --. KWAME HOLMAN: Frist, who led a Senate delegation to the Gulf region last Friday, vowed Congress will give the president the money necessary to pay for the recovery. But fiscal conservatives within his party say other government programs must be slashed or shelved to deal with the sprawling costs of Katrina, noting the federal budget already has been squeezed to pay for the Iraq War. REP. MIKE PENCE: I also believe that we ought to take a really hard look at delaying implementation of the new prescription drug entitlement. That alone would put $40 billion back on the books that we could apply to Katrina next year. KWAME HOLMAN: The president has said the federal government will pay for most of the recovery effort, and suggested that spending in other areas of government should be cut. PRESIDENT GEORGE W. BUSH: It's going to mean that we're going to have to make sure we cut unnecessary spending. KWAME HOLMAN: Reporter: Some Congressional Democrats agree, but many such as North Dakota Sen. Byron Dorgan say the savings must not come from the programs for the poor and disadvantaged. SEN. BYRON DORGAN: But if belt tightening, as it usually does, means withdrawing healthcare from poor people and the kinds of things that hurt most those who are poorest in this country, that is not, in my judgment, advancing America's cause. KWAME HOLMAN: Meanwhile, House Majority Leader Tom DeLay said don't expect tax increases to pay for the recovery. REP. TOM DeLAY: The Gulf Coast region is today without an economy, without jobs, or businesses, or investment. Raising taxes will not help create any of those things but will instead guarantee that the region's economic troubles spread to the rest of the country. KWAME HOLMAN: Ohio Democrat Dennis Kucinich said wealthy recipients of the Bush administration's tax cuts should help pay the bill for Katrina. REP. DENNIS KUCINICH: However, I think all Americans would expect that the top 1 percent of the income earners in this country who receive most of the benefits from the administration's tax cut, should have to give up some of their tax cuts in order to relieve the burden on the people in the Gulf Coast. It's only fair. KWAME HOLMAN: Another idea congressional leaders discussed was to set an overall budget ceiling on what the federal government would be allowed to spend on Katrina relief. | ||||||||||||||||||||||||||||
| Two opinions on paying the bill | |||||||||||||||||||||||||||||
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Welcome, gentlemen. Mr. Toomey, we heard Sen. Frist say today that this is going to mean huge federal expenditure and that we have to face the fact that our children are going to be the ones paying for it. Is that inevitable?
GWEN IFILL: Mr. Collender, last week the Congress and the president passed $62 billion, which the president described as a down payment on what would need to be spent on Katrina. Is there enough in the budget to offset that cost as Mr. Toomey suggests?
You get down to basically about $500 billion that's available to be looked at relatively easy, and the key word there is relative, which means we'd have to cut 40 percent or thereabouts of everything in this what's left category to pay for Katrina, and that's not going to happen. I mean, that would pit one part of the country against another, one constituency against another; you would slow down the aid to Katrina under those circumstances. So whether or not it should happen, it's not going to, the politics just aren't there. GWEN IFILL: So is that pie in the sky, Pat Toomey? PAT TOOMEY: I wouldn't give up so quickly. First of all, the expenditures for Katrina are not all going to occur in one year, this is going to take time, the rebuilding and the construction by its nature takes a number of years. Secondly I think some of the programs that Stan is suggesting might be unavailable for cuts actually ought to be on the table, including some of the mandatory spending programs. So I think the available pool is a little bit larger than that. And thirdly, I would suggest that there is a very strong and growing sentiment amongst voters and we see it all the time amongst our own members and candidates for Congress across the country, there's a level of frustration with the total spending in Washington, in the sense that you got to get this under control, and I think if Congress just goes ahead and spends all this money without any kind of offsetting reductions, politician, members of Congress will pay the price by losing their seat next fall, and that's something that they're not going to want to risk. |
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| Potential cuts and tax increases | |||||||||||||||||||||||||||||
| GWEN IFILL: Let's talk about what's on the table and what's not on the table. For instance, Sen. McCain and others have suggested that the prescription drug Medicare benefit that was passed last year should be cut out entirely or at least rolled back. The president, the White House said no. Should that be on the table or off the table?
However, when you consider the political capital that the leadership in the House and Senate and the White House put into getting that passed, I understand that that particular program is probably unlikely. GWEN IFILL: What about making tax cuts permanent as the president has insisted he will?
PAT TOOMEY: And I would just add that neither should we. We have an economy that is facing the unprecedently high oil prices where we're getting into a fairly advanced stage of economic expansion and now we have a hurricane that's done enormous damage. This is no time to raise taxes and tip the economy into recession. It certainly wouldn't help in the rebuilding. GWEN IFILL: What about Medicaid cuts, which have been $10 billion in Medicaid cuts which presumably benefit the kind of people that Katrina needs to help right now, should they be rolled back? PAT TOOMEY: Medicate absolutely has to be on the table. There are states in which huge percentages of the population are getting Medicaid benefits. This program has been growing at rates that are absolutely unsustainable. I think everybody on both sides of the aisle ultimately understands that. This would be a good time to take another look at that program.
STAN COLLENDER: Well, and there may be a lot of pork, but that bill just passed; it passed overwhelmingly in both houses, the president signed it. And, you know what, even if they cut back some of what some people might call pork, but other people would call a very important sacred cow for their districts and states, the level of savings would have been relatively small. The time to stop that bill from happening, that spending from occurring was when it was first being considered earlier in the year. |
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| Borrowing to pay the bill | |||||||||||||||||||||||||||||
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GWEN IFILL: So we've been talking for a few minutes here about options, none of which seem to be realistic options. How do you pay for Katrina?
GWEN IFILL: You think the president is likely to veto any bill that includes that spending? PAT TOOMEY: I don't think that will necessarily be the criteria for a veto, but I'd certainly hope that if the spending is not offset that the president would be willing to veto.
GWEN IFILL: Is that a temporary thing? STAN COLLENDER: Actually not. A lot of the spending that's going to happen on Katrina will be one time in nature, some of the emergency assistance, some of the cleanup, but some of the additional spending like keeping FEMA, increasing FEMA, providing more dollars for the Coast Guard, more dollars for the Pentagon so it can respond in emergencies, more money for state agents and industry bailouts, that's not going to go away anytime soon. And what we're going to see is a deficit eventually that's lower than where it's going, but never getting back to the levels that or not getting back to the levels anytime soon that we saw before. GWEN IFILL: Excuse me. The president's goal of halving the deficit in five years, is that still going to happen? STAN COLLENDER: It depends what you mean by the word "half."
STAN COLLENDER: Well, are we talking about as a percentage of the economy, or are we talking about nominal terms, are we talking about it from the theoretical level the White House was using of $512 billion, or are we going to do what the White House said recently, which is we're talking about cutting the deficit in half but not including the cost of Iraq or Katrina, or some of the other one-time elements that we have to spend money on. GWEN IFILL: Is that acceptable? PAT TOOMEY: I don't think so. I think we need to go after the offsets. You know, at some point the role of the federal government ought to be to make some tough decisions and not just spend everything on every program that comes along and every conceivable need. There's a big danger that this kind of very, very sweeping and broad federal approach to Katrina becomes a permanent quasi governmental entity that's out there just to write huge checks every time there's any kind of natural disaster. That is not only an enormous expense, but there's a moral hazard to that, it takes away the incentive to have insurance and other prudent sort of safety measures. I think this is a dangerous road we could be going down. |
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| Long-term economic effects | |||||||||||||||||||||||||||||
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GWEN IFILL: Is the economy strong enough to withstand the kinds of tests and the kind of pressure that Katrina is about to put on it?
The problem comes in when you add in the cost of energy, when you talk about the long-term impact on interest rates; that's when the real danger is going to come.
GWEN IFILL: A fight that's just beginning. Pat Toomey, Stan Collender, thank you both very much. PAT TOOMEY: My pleasure. |
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GWEN
IFILL: So, what are the expectations of, and the limits to, spending on a disaster
like Katrina? For two points of view, we turn to: Pat Toomey, a former Republican
member of Congress who is president of the Club for Growth, which supports limited
government and low taxes; and Stan Collender, managing director of Financial Dynamics,
a consulting firm. He's also a former Democratic staffer for the House and Senate
Budget Committees. 
PAT
TOOMEY: It's shouldn't be inevitable. We've got a record size federal budget,
we've got a record amount of waste in the federal budget, and I think it's really
important that we start to offset some of these expenditures. You know, in the
past when we've had natural disasters -- admittedly this is on a larger scale
-- but in the past it was actually routine that we would introduce off setting
reductions in spending for new unanticipated appropriations. I think we should
take that approach now more than ever, in part because of the size of our deficits,
in part because of the magnitude of this effort. It looks like it's going to be
quite large, and we just can't be having this unlimited expenditure open checkbook
by the federal government. 
STAN
COLLENDER: Well, in theory yes. We've got a budget of $2.6 trillion. You would
think you'd find a few shekels here and there to be able to pay for things. But
a good part of that there is things like Social Security and Medicare which Congress
and the President have said they are not going to cut, other entitlements which
are difficult to cut, interest on the debt, defense, homeland security which is
basically untouchable for a variety of other reasons. 
PAT
TOOMEY: I think it should be absolutely. Actually, I think the entire program
was ill conceived and certainly delaying it at a minimum would save an awful lot
of money. And there are a number of members of Congress including Mike Pence from
the Republican study committee, and others, who are advocating exactly that.
STAN
COLLENDER: Well, that would qualify in many people's mind as a tax increase, which
the entire Republican leadership, the White House has said there's no way, no
how -- isn't going to be considered. And besides, making some of those tax cuts
permanent can be delayed until a year from now, because they're not going to really
phase out anytime soon. So that's probably not going to happen. We're not talking
about tax increases. No one is talking about tax increases seriously. 
GWEN
IFILL: Highway spending, energy spending. A lot of people say there's a lot of
pork in that. 
PAT
TOOMEY: Well, again, you know, we should revisit this transportation bill. I mean,
in that bill there's over $250 million to build a bridge in Alaska that goes to
an island with 50 people on it. You could buy a Lear Jet for one of those people
instead of building that bridge. There's unbelievable amounts of waste there.
The president in his '06 budget proposal proposed $17 billion in elimination and
consolidation of existing programs because he came out and said these programs
are redundant and not effective. 
STAN
COLLENDER: But the answer to your question: is how are we going to pay for this
if we're not going to increase taxes or cut spending -- very simply we're going
to borrow it. The deficit is going to go up. $450 billion in 2006 is not an unreasonable
number; it could even be a little bit higher depending upon how fast the spending
actually occurs. So just as Sen. Frist said, we're all going to be paying for
this for quite some time as we continue to pay the interest on the national debt
over a period of 10, 20, or 30 years.
GWEN
IFILL: I don't understand. 
STAN
COLLENDER: Well, short-term the answer is absolutely. First of all, even if we
increase the deficit by $200 billion in one year, which is an overstatement but
that's the total cost of Katrina, we're talking about an economy of $11 or 12
trillion, and in the short-term we can certainly, you know, absorb that, handle
that, borrow it without creating big pressure on interest rates and a variety
of other things. 
PAT
TOOMEY: I think the economy is very, very strong, it's actually amazingly strong
across such a wide range of criteria, I think it's largely due to the tax cuts
that were put in place in 2003, which is why it's so important that we make them
permanent so, that we sustain this growth. But long-term we can't allow the government's
share of our economic output to keep growing because that allocation of resources
is always suboptimal at best and that diminishes or ability to grow a more prosperous
economy. 
