Digging out

October 17, 2004

WHICH PRESIDENTIAL candidate would be best in the long run for the U.S. economy? Let's momentarily set aside their campaign rhetoric to ponder the deep and dangerous fiscal hole into which this nation has sunk.

With annual national budget deficits exceeding $400 billion and even larger trade deficits, America has to borrow more than $4 billion a day from abroad just to make ends meet. Given the relative strength of the U.S. economy, the world may keep lending for quite a while. But come the day investors start to flee U.S. soil -- perhaps in a decade when baby boomers really start draining the Treasury -- the dollar could crash, inflation could soar, and an ugly economic and political crisis could well ensue.

America's growing fiscal dependence on the world should be at the forefront of the economic debate between President Bush and Sen. John Kerry. But as the nation heard in last week's debate, only slices of the problem -- tax cuts, spending plans, Social Security and Medicare -- briefly come into focus. That's not surprising given that digging out of this hole simply has to involve painful tax increases and spending cuts -- harsh medicine not easy to sell to voters.

Of course, neither candidate will touch that right now. Both promise to halve the deficit within five years, but with questionable assumptions and accounting. On paper, Mr. Bush would seek more unaffordable tax cuts; Mr. Kerry would cut taxes less but wants unaffordable new spending. Either way, the growth in national debt, according to budget watchdog Concord Coalition, would be about the same: at least $1.3 trillion -- likely much more -- over the next decade. That's the equivalent of going on a credit card binge right before retiring.

Whoever is elected must confront this gathering storm with honesty, flexibility and leadership. On that score, Mr. Kerry is less known but more promising than Mr. Bush. The president has been nothing short of reckless in his continuing quest for record tax cuts, even as it has become obvious that they're not producing much economic bang for their cost in added debt. At every turn, Mr. Bush has obstinately embraced the discredited supply-side position that growth will undo the mounting fiscal damage.

Mr. Kerry has more credibility as a deficit fighter. He's at least been talking about part of the solution, the need to reinstate the Clinton-era PAYGO budget deal forcing Congress to find new funds to offset tax cuts and spending increases -- a deal that led to the late 1990s' budget surpluses. In that, Mr. Kerry has been influenced by his potential appointee as Federal Reserve chief, former Clinton Treasury Secretary Robert E. Rubin, who has been among those warning that Mr. Bush's tsunami of debt will lead to a grave day of reckoning.

There's no question America has fallen into a hazardous fiscal hole under Mr. Bush. The big question is: Will the next president summon the political courage to acknowledge the dangers and build support for beginning the tough job of digging out?

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