July 14, 1997
JUST AS ALL the fiscal signs point to an economy robust enough to wipe out Washington's chronic federal deficit in just a few years, Congress and the president are moving toward an agreement that would blow to smithereens hopes for a long-term balanced budget. They want to put the proverbial cart before the horse.
In this case, it means placing priority on a Christmas tree filled with tax-cut goodies for voters -- education tax incentives, lower capital gains and estate taxes, child tax credits, new retirement-savings accounts. Add them up and the total comes to roughly $137 billion over five years and a staggering $360 billion over 10 years. That's more than enough to bury hopes for a balanced budget over the long haul.
The goal initially was to wipe out the deficit by 2002. But as the strength of the economy translated into an unexpected gusher of tax collections, political focus at the White House and on Capitol Hill shifted from deficit reductions to tax relief. House, Senate and White House plans all call for tax cuts that mushroom dramatically after the budget is balanced -- briefly -- in 2002.
Take the child tax credits that all sides are pushing. After 2002, the size of these tax cuts doubles. Capital gains cuts are even worse, growing by a factor of 7 in the Senate plan and a factor of 36 in the House plan after 2002.
Combined with Washington's failure to address the looming crises in funding Medicare and Social Security, the huge tax cuts mean that mega-deficits will quickly reappear.
This will prove costly in many ways. Here's one example. As Peter Jensen reported in The Sun recently, Western Maryland officials want to revive Garrett County's economy with an interstate highway in place of U.S. 219, running from Buffalo, N.Y., to Bluefield, W.Va. It is an ambitious plan that could turn this route through impoverished, rural areas into a major trade corridor filled with jobs.
But the plan may never get off the ground. It would cost $4.8 billion, most of it from Washington. The money isn't there for the project because so much road-building revenue is being diverted to help reduce the federal deficit. Failure to achieve a long-term balanced budget will have a detrimental impact on domestic programs such as this highway development plan.
A growing number of economists say tax cuts ought to be delayed until after the federal deficit has vanished and the Medicare-Social Security problems have been addressed. But politicians can't resist pandering to voters. The balanced-budget fight is far from over.
Pub Date: 7/14/97
