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Budget Committee Splits On Partisan Lines On Bush's Plan
WASHINGTON (Dow Jones)--During a House Budget Committee hearing, Republican and Democratic House lawmakers as well as administration officials agreed Tuesday that large, persistent deficits pose a grave threat to the economy. "A country can't be strong and free and broke," said Dennis Moore, D-Kan. They just didn't agree on how to solve the problem. For Republican lawmakers, the answer to this year's record $521 billion deficit is to cut spending. Democrats pointed to the president's tax cuts and said the government can't afford them. Meanwhile, administration officials said they believed that stronger economic growth would roll back the deficits through higher tax revenues. House Budget Committee Chairman Jim Nussle (R-Iowa) outlined the problem lawmakers face by saying the only three ways to tackle the deficit is to raise taxes, cut spending, or encourage stronger economic. He received confirmation from Office of Management and Budget Director Joshua Bolten that the Bush administration won't countenance a tax increase and ticked it off the list. Instead, Nussle praised Bush's fiscal year 2005 budget, which limited overall discretionary spending to less than a 4% increase as a good "blueprint" for "an austere" budget which will hold spending in check. "We must... get a hold of our out-of-control spending," Nussle said. He also urged fellow lawmakers to forgo pork barrel projects and warned the highway bill will be a true test for those who talk austerity, but then back spending with their votes. He urged the president not to hesitate to veto any highway spending bill that didn't hold the line. "We have an opportunity to put our chest beating where our mouths are," Nussle said. Rep. John Spratt of South Carolina, the ranking Democratic member on the committee, laid into the president's budget proposal by pointing out it takes no account of the cost of occupying Iraq and Afghanistan in 2005 He also noted it has no provision to reform the Alternative Minimum Tax ( News - Websites ) , which threatens to engulf 20 million to 30 million middle- and upper-income taxpayers who now depend on deductions. As for spending restraint, Spratt pointed out the president has already said homeland security and defense will receive as much money as needed to protect the country leaving cost cutting measures to be concentrated on discretionary spending elsewhere in the budget. In the fiscal year 2005 budget, this means looking for savings out of the $386 billion in non-defense and non-security programs out of a total discretionary budget of $818 billion. Furthermore, discretionary spending is only a small portion of the overall federal budget of $2.4 trillion. "What you offer as an antidote (to the deficits) is spending restraint on one- seventh of the budget," Spratt said. "I don't think the course you are plotting is sustainable," he added. Bolten said the administration was counting of the fact the tax cuts passed during the first three years of the administration have kicked started the economy and this will result in higher revenues rolling into the Treasury. "As the economy improves, Treasury revenues will as well," Bolten said. As for why this hasn't happened so far, Bolten said it was still early days. "With Treasury receipts only beginning to reflect a recovering economy - and major ongoing expenditures in Iraq, Afghanistan and elsewhere in the war on terror - we still face a projected $521 billion deficit," he said. Bolten said higher growth rates plus holding back spending will rapidly cut the deficit. As for the outlook for the economy, Gregory Mankiw, the head of President George W. Bush's Council of Economic Advisers, said the forecast is sunny with economy turning the corner in 2003 and likely to strengthen further. "The economy now appears to have moved into a full-fledged recovery," he said. Over the next four years, the economy will grow faster than its historic average since 1960 of 3.3%, he predicted. Mankiw acknowledged the deficits are a problem, but he said tax hikes to get rid of them are also a problem. "It is true that, according to most economic models, large, persistent deficits act as a drag on the economy. It is true as well that, according to most models, higher tax rates alter incentives in a way that also acts as a drag on the economy," Mankiw said. "The solution to long-run deficits is continued pro-growth tax policy and spending restraint," he concluded. Back to Original Article: Mortgage News You Can Use
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