Nickdfresh
03-16-2005, 05:47 PM
Fiscal fantasies
Tax cuts and increased federal spending are an economic formula for disaster
3/16/2005
http://buffalonews.com/graphics/2005/03/16/0316green8px24ibw.jpg
Alan Greenspan
Federal Reserve Chairman Alan Greenspan's warning that ballooning federal deficits are "unsustainable" should be a much-needed splash of cold water for a White House that too often puts ideology before fiscal reality.
Greenspan thinks the problem demands spending cuts and a reassessment of efforts to cut taxes. The Bush administration and congressional Republicans think he's only half right. They ought to be listening with both ears.
Here's the key phrase from Greenspan's House Budget Committee testimony: "I fear that we may have already committed more fiscal resources to the baby boom generation in its retirement years than our economy has the capacity to deliver."
"Unless the trend is reversed, at some point these deficits would cause the economy to stagnate or worse," Greenspan said.
The deficit problem is driven more by Medicare than Social Security. The federal government has passed huge entitlement increases, primarily a Medicare prescription drug benefit, at the same time it has cut its own revenue by "temporary" tax cuts that the White House still wants to make permanent. Anyone who prepares a household budget knows what happens when you increase expenses while losing income.
Greenspan is right in targeting spending cuts as the best way to keep the government within its means. A decade ago the feds had to find ways to offset the costs of new programs with cuts elsewhere or new tax revenues. But those rules were abandoned, and current Republican leaders argue that any new "pay as you go" restrictions should not apply to tax cuts, only to new spending.
Regardless of what Vice President Cheney thinks, deficits do matter. They pay for current needs by mortgaging the country's future. But those bills eventually come due. Greenspan is right to worry that ever-increasing debt, plus ever-increasing interest costs on that debt, could mean disaster when that debt collides with increasing baby-boomer Medicare and Social Security obligations, let alone the costs of wars.
On one side of that equation, program spending should be curtailed. There are ways to reform the biggest looming problem, Medicare spending. An obvious start would be to lift the ban on using the government's bulk-purchasing power to negotiate prices for drugs. Social Security's fiscal problems aren't as large, despite the greater publicity they have attracted. Still, those problems need attention. President Bush's "privatization" plan would make more sense if he follows through on hints that he may propose it as an add-on option rather than making the government borrow even more money to replace payroll taxes diverted to set up personal accounts.
The other side of the equation, though, demands that government look closely at how deeply it reduces its own income through tax cuts. Extending all the tax cuts that are scheduled to expire would add $1.8 trillion to the national debt over the next decade, the Congressional Budget Office estimates. Annual deficits already have driven that debt from $3.4 trillion at the end of the 1990s to $4.3 trillion today. That sure looks like "unsustainable" debt growth.
Greenspan acknowledges that tax increases big enough to deal with the deficits could chill the economy by curtailing market investment and consumer spending. But the government must find a balance between income and spending. It can't continually drive spending up and income down. That way lies fiscal madness.
Linky (http://buffalonews.com/editorial/20050316/1021317.asp)
Tax cuts and increased federal spending are an economic formula for disaster
3/16/2005
http://buffalonews.com/graphics/2005/03/16/0316green8px24ibw.jpg
Alan Greenspan
Federal Reserve Chairman Alan Greenspan's warning that ballooning federal deficits are "unsustainable" should be a much-needed splash of cold water for a White House that too often puts ideology before fiscal reality.
Greenspan thinks the problem demands spending cuts and a reassessment of efforts to cut taxes. The Bush administration and congressional Republicans think he's only half right. They ought to be listening with both ears.
Here's the key phrase from Greenspan's House Budget Committee testimony: "I fear that we may have already committed more fiscal resources to the baby boom generation in its retirement years than our economy has the capacity to deliver."
"Unless the trend is reversed, at some point these deficits would cause the economy to stagnate or worse," Greenspan said.
The deficit problem is driven more by Medicare than Social Security. The federal government has passed huge entitlement increases, primarily a Medicare prescription drug benefit, at the same time it has cut its own revenue by "temporary" tax cuts that the White House still wants to make permanent. Anyone who prepares a household budget knows what happens when you increase expenses while losing income.
Greenspan is right in targeting spending cuts as the best way to keep the government within its means. A decade ago the feds had to find ways to offset the costs of new programs with cuts elsewhere or new tax revenues. But those rules were abandoned, and current Republican leaders argue that any new "pay as you go" restrictions should not apply to tax cuts, only to new spending.
Regardless of what Vice President Cheney thinks, deficits do matter. They pay for current needs by mortgaging the country's future. But those bills eventually come due. Greenspan is right to worry that ever-increasing debt, plus ever-increasing interest costs on that debt, could mean disaster when that debt collides with increasing baby-boomer Medicare and Social Security obligations, let alone the costs of wars.
On one side of that equation, program spending should be curtailed. There are ways to reform the biggest looming problem, Medicare spending. An obvious start would be to lift the ban on using the government's bulk-purchasing power to negotiate prices for drugs. Social Security's fiscal problems aren't as large, despite the greater publicity they have attracted. Still, those problems need attention. President Bush's "privatization" plan would make more sense if he follows through on hints that he may propose it as an add-on option rather than making the government borrow even more money to replace payroll taxes diverted to set up personal accounts.
The other side of the equation, though, demands that government look closely at how deeply it reduces its own income through tax cuts. Extending all the tax cuts that are scheduled to expire would add $1.8 trillion to the national debt over the next decade, the Congressional Budget Office estimates. Annual deficits already have driven that debt from $3.4 trillion at the end of the 1990s to $4.3 trillion today. That sure looks like "unsustainable" debt growth.
Greenspan acknowledges that tax increases big enough to deal with the deficits could chill the economy by curtailing market investment and consumer spending. But the government must find a balance between income and spending. It can't continually drive spending up and income down. That way lies fiscal madness.
Linky (http://buffalonews.com/editorial/20050316/1021317.asp)