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National Bank
01.23.04
Politics and Economy:
Debating the Deficit
More on This Story:
Overview

In his State of the Union address President Bush pledged to reduce the federal deficit by half in five years. This promise was made in response to growing concern among some of the President's die-hard supporters who are concerned about the growing deficit — expected to top $500 billion this year alone. Voices from conservative entities such as the Heritage Foundation, the Club for Growth and the WALL STREET JOURNAL's editorial page have all called for deficit reduction to become an immediate priority. Forty Republicans from the House of Representatives met recently to come up with a new deficit battle plan.

It's not just calls from conservatives that have put the deficit on the election agenda. The International Monetary Fund came out with a strongly-worded statement warning that an unchecked deficit poses "significant risks" to both the U.S. and the world economies. In addition, deficit worries are frequently cited as a contributing cause to the slide of the dollar against other currencies.

Just how big is the deficit problem? When President Bush took office three years ago, the Congressional Budget Office forecast a surplus of $5.6 trillion for the next decade. This outlook was a result in part of the economic boom of the 1990s and of a bi-partisan deal made in 1997 to balance the federal budget by 2002. Thanks to the Wall Street boom, that goal was achieved early, giving the U.S. its first balanced budget since the late 1960s. Since then much has happened, including the attacks of 9/11 and the War in Iraq. The White House notes that although the deficit is the largest ever in dollars, it accounts for only 4 percent of the nation's GDP, less than the 6 percent of GDP size of the deficit under Ronald Reagan in 1983.

For some conservatives that percentage differential is small comfort. Below read more from conservatives on both sides of the deficit debate. Also, take a look at NOW's Tax Cut Debate feature.

Discuss your thoughts on the topic.

Defending the DeficitDeficit Hawks
"Federal borrowing rose about $400 billion last year, but in a globalized financial market, where demand and supply come from all over, that's less than 1 percent of total debt. A pebble in the ocean.

It's not that deficits don't matter just not at these levels, or at any level that's truly feasible. Our government debt, at about 50 percent of GDP, is far lower than that of Europe and Japan. Unless deficits truly get out of hand (and we're far from that), other things, like taxes, matter much more. President Bush said that tax cuts would leave more money in the pockets of Americans, who would spend and invest to lift the economy. That's happened. As the economy gets better, revenues will rise, and the deficit will shrink."

- James K. Glassman, "By Deficit Obsessed", American Enterprise Institute

"Instead of setting such painless goals as keeping growth in discretionary spending modest or cutting the deficit in half, the President should take a firm grip on the reins of the federal checkbook and the taxpayers’ wallet by firmly opposing any new entitlement and vetoing any bill that contains corporate welfare. He should take a strong lead and force Congress to change the dynamics that lead to wasteful spending and pork barrel projects by rewarding members who want to save money, not hand it out by the fistful. These are the bold actions that are necessary to pass on a strong economy and sound fiscal foundation for the next generation. "

- Alison Fraser, "The State of Spending" The Heritage Foundation

"Politically, the main importance of the deficit is that it undermines the case for tax cuts. Indeed, every Democrat running for president next year would reverse already enacted tax cuts, at least in part. They want the higher revenues to pay for increased spending, rather than deficit reduction. But higher deficits make their case easier.

One problem is that current deficits have very little to do with tax cuts. If all the tax cuts over the last 3 years were magically rescinded, we would still have a deficit of almost $300 billion, due to the economic recession and higher spending for national security. Moreover, economic growth would be slower and unemployment would be higher -- substantially so according to a Treasury Department study."

- Bruce Bartlett, "Deficit politics", Townhall.org

"That the nation's budgetary situation continues to deteriorate is because the administration's fiscal policy has been decidedly more about politics than policy. Even the tax cuts, which happened to be good policy, were still political in nature considering their appeal to the Republican's conservative base. At the same time, the politicos running the Bush reelection machine have consistently tried to placate or silence the liberals and special interests by throwing money at their every whim and desire. In mathematical terms, the administration calculates that satiated conservatives plus silenced liberals equals reelection."

- Veronique de Rugy and Tad DeHaven, "'Conservative' Bush Spends More than 'Liberal' Presidents Clinton, Carter" The Cato Institute

Deficit reduction? According to an analysis of congressional Democrats' budget plans by the anti-deficit Concord Coalition, Democrats simply spend all the money that Bush would devote to tax cuts on programs from Medicare to education.

They would do well to recall another lesson from the 1990s: A growing economy creates more tax revenue, which can, in turn, be devoted to higher spending. In the booming late 1990s, Clinton and Republicans could afford routinely to agree to levels of spending above statutory spending 'caps.'"

- Rich Lowry, editor, NATIONAL REVIEW

"It pains me to say this, but the Republicans in Washington seemingly have forgotten who they are and why voters sent them to the capital in the first place.

Even though we now have GOP control of the White House, the Senate and the House, the bloated $ 2.25 trillion federal government has grown more rapidly on President Bush's watch than it did under Clinton.

What in the world is going on here? Aren't the Republicans supposed to be the fiscally conscientious, anti-big government party?"

- Stephen Moore, president, Club for Growth

Sources: THE NEW YORK TIMES, THE ECONOMIST, "U.S. Fiscal Policies and Priorities for Long-Run Sustainability,"The International Monetary Fund, The Congressional Budget Office

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