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Staggering tax increases, immense deficits or deep cuts in every category of spending
USA Today
By Richard Wolf
February 5, 2006

WASHINGTON — President Bush painted a dark picture of the government's fiscal future in last week's State of the Union address. By 2030, he said, thanks to baby boomer retirements, Social Security, Medicare and Medicaid will consume well more than half of all federal spending.

"That will present future Congresses with impossible choices: staggering tax increases, immense deficits or deep cuts in every category of spending," Bush warned. "We need to put aside partisan politics and work together and get this problem solved."

Lawmakers and budget experts who helped negotiate past budget deals — deals that saved Social Security from bankruptcy, restored the faith of the financial markets and helped turn record deficits into surpluses — say no such bipartisanship is likely this year or anytime soon.

The reasons: Congress is too polarized, the crisis is still years away, and President Bush has shown no interest in mounting the sort of major deficit-reduction effort that produced huge savings in the 1990s but had devastating political costs. After two of those campaigns, the first President Bush lost his bid for a second term, and President Clinton saw Democrats lose control of Congress. Instead, the current President Bush will continue to push for comparatively modest savings in the budget he'll unveil today.

Eventually, the experts say, a future president and Congress will have to raise taxes, cut government benefits, or both. "What will trigger it," says Douglas Holtz-Eakin, director of the Center for Geoeconomic Studies at the Council on Foreign Relations, "is arithmetic."

Each of the past three presidents compromised with leaders of the other party to pass major budget legislation. Working with Democrats, Ronald Reagan helped save Social Security from bankruptcy in 1983 and trimmed the deficit following the 1987 stock market crash. George H.W. Bush reneged on his "Read my lips — no new taxes" pledge in 1990 to cut a record $482 billion from the deficit over five years. And after engineering a major deficit-reduction package in 1993 with a Democratic-run Congress, Clinton agreed to another deficit-reduction deal with Republicans in 1997.

Those kinds of trade-offs aren't being discussed today. Budget experts cite these reasons:

• President Bush won't make the same political mistake his father made. When he proposed overhauling Social Security last year, he put benefit reductions on the table, but not tax increases.

"This president is losing his capacity to get a major domestic accomplishment because he is unwilling to put any portion of the tax cuts for the highest-income Americans on the table," says Stan Collender, Washington managing director for Financial Dynamics.

• Republicans run the White House and Congress. The only major budget deal passed under one-party rule was in 1993, when Democrats cut $433 billion over five years, mostly by raising taxes. It backfired at the polls in 1994, when Republicans took over the House and Senate.

"When we control both ends of Pennsylvania Avenue, we don't have to have these negotiations," says Bill Hoagland, top budget adviser to Senate Majority Leader Bill Frist. "But you can't do these things — witness Social Security — on a partisan basis."

• Democrats are equally resistant to hard choices. "There is a tremendous lack of leadership in both parties to address this issue," says Leon Panetta, who served as House Budget Committee chairman, White House budget director and White House chief of staff when several budget deals were inked.

• Four years of budget surpluses in 1998-2001 led lawmakers to cut taxes and increase spending on programs such as Medicare's new prescription-drug benefit. "The surpluses put everybody to sleep," says Robert Bixby, executive director of the Concord Coalition, a budget watchdog group.

• No crisis appears imminent. Unemployment, inflation and interest rates are low, and the economy is growing. Social Security's benefits won't outstrip taxes until 2017; its trust fund would run dry only in 2041.

"There is no perception among the American people, nor their elected representatives, that there is a serious problem that needs fixing," says Robert Reischauer, president of the non-partisan Urban Institute and a former director of the Congressional Budget Office.

Some Republicans remain optimistic. Sen. Judd Gregg, R-N.H., chairman of the Senate Budget Committee, saw Bush's State of the Union speech as "very much of a reaching-out attempt."

"I think the president's made a move, and I hope that people take him up on it," Gregg says.

Many Democrats say Bush needs to go further. Gene Sperling, who served as a top Clinton economic adviser, says the president should offer to eliminate tax cuts for the wealthiest 1% of Americans as an opening gambit. Short of that, Democrats say the president at least must put all solutions on the table. "It's got to be an acknowledgment that we are on an utterly unsustainable course," says Sen. Kent Conrad, D-N.D., top Democrat on the Senate budget panel.

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