Government report offers budget-balancing options

Extending tax cuts could prevent wiping out of deficits, study says

January 25, 2007|By Joel Havemann | Joel Havemann,LOS ANGELES TIMES

WASHINGTON -- President Bush can balance the budget within five years, or he can get Congress to extend his tax cuts beyond their scheduled expiration, the Congressional Budget Office reported yesterday - but probably not both.

Bush has said otherwise, committing himself in Tuesday's State of the Union address, as he did earlier this month, to providing Congress on Feb. 5 with spending and tax proposals for fiscal year 2008 that would put the budget on a path toward balance by 2012.

"We must balance the federal budget," Bush said Tuesday night. "We can do so without raising taxes."

The nonpartisan CBO, in its annual report on where current spending and tax policies would take the budget over the next 10 years, did not contradict Bush in so many words. But its tables painted an unmistakable picture of a budget that needed an extra infusion of cash or a sharp reduction in outlays if revenues were ever to exceed spending.

And even if the budget could be balanced in 2012, said Peter R. Orszag, the CBO's director, the retirement of the baby-boom generation could quickly unbalance it: Not only would the wave of retirees force the government to spend more for Social Security, Medicare and other benefit programs, he said, but it would drain the population of taxpaying wage-earners.

Republicans in Congress saw the report as portraying a potentially bright budgetary future.

"Congress is within reach of balancing the budget without raising taxes if significant entitlement reforms are enacted within the next five years," said Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee. "Without such reforms, these programs will overwhelm the budget and jeopardize the health of our economy."

Rep. Roy Blunt of Missouri, who ranks second in the House GOP leadership, was more enthusiastic. "Tax relief has spurred unprecedented economic growth," he said, "and these results prove that we can balance our budget without raising taxes."

To Democrats, the fiscal outlook was much gloomier. Senate Budget Committee chairman Kent Conrad of North Dakota said the CBO must base its projections on current spending and tax law, without regard to likely changes. And currently, he said, the Iraq war is underfunded - the administration is expected soon to ask for an additional $100 billion for this year - and the tax cuts that Bush wants made permanent are due to expire at the end of 2010.

When the budget office's projections are adjusted for these and other factors, said Rep. John M. Spratt Jr., a South Carolina Democrat who leads the House Budget Committee, the result is "a bleak reminder of how much current policy will need to be changed to return the budget to a fiscally responsible course."

Both liberal and conservative budget analysts took the Democrats' slant. Brian M. Riedl, lead budget specialist at the right-of-center Heritage Foundation, said the new numbers implied that balancing the budget by 2012 without increasing taxes meant that federal spending could be $294 billion greater in 2012 than 2007. But in that period, he noted, Social Security, Medicare and Medicaid costs would rise by $367 billion.

Under current law, if the tax cuts expire as scheduled at the end of 2010, the budget would swing nearly to balance in 2011 and show a $170 billion surplus in 2012, according to CBO estimates.

But that would occur only if Congress allows the tax cuts to expire. Such a decision - far from a foregone conclusion - would generate $268 billion in revenue in 2012. Without it, there would be a $100 billion deficit.

The budget office said other likely tax actions - notably, continued relief from the alternative minimum tax, which increasingly hits middle-class taxpayers instead of just the very wealthy - would add $160 billion more to the 2012 deficit.

On the spending side of the budget, substantial troop reductions in Iraq could save $43 billion in 2012. But that could be more than offset if Congress let domestic appropriations, which Bush has targeted for no increase even for inflation, grow as fast as the combination of economic output and inflation. Altogether, the policy changes identified by the CBO could turn the 2012 surplus of $170 billion into a deficit of $245 billion.

Joel Havemann writes for the Los Angeles Times.

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