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One of the silliest arguments made these days by some of the most rabid tax cutters in Washington is that a budget deficit caused by a tax cut does not matter, while a deficit caused by a spending increase is the devil's tool.

There are two reasons why this is as close to budget drivel as you can get.

First, unless more money is printed, every deficit has to be funded by the government issuing debt and someone getting paid the interest on those securities. The interest payments are a burden on the budget in the same way and in the same amount, regardless of the reason they were incurred. Mechanically speaking, therefore, there is no difference between a deficit caused by a tax cut and one caused by a spending increase.

Second, it is often impossible to tell the difference between tax-cut and spending-increase deficits because the tax-cut deficit is caused at least in part by increased spending - for higher interest payments.

Indeed, the largest increase in spending over the next decade is not likely to be on the military, homeland security, Medicare, education or any other program area. The rising deficits, which even tax-cut supporters admit are at least partly the result of reduced revenues, will cause dramatically higher federal borrowing and, therefore, much greater interest payments on the national debt.

Higher federal interest payments are additional federal spending. The interest payments have to be authorized and appropriated like all other spending and are properly accounted for as a government outlay.

So the tax-cut deficit that some say should be ignored in reality is caused by a great deal of the higher spending that those same people say should be a grave concern.

The additional problem with the argument that only spending-induced deficits matter is that tax-cut supporters have been more than willing to go along with spending when it suited their interests and, therefore, are anything but pure on the subject.

Aside from the higher interest payments, the tremendous increase in agriculture spending approved by Congress and the Bush administration in the farm bill was the first and perhaps the best example of this. But there have been others, the most obvious of which are the increases for the Pentagon, homeland security and Iraq peacekeeping without offsetting reductions in other programs.

Congress and President Bush also agreed to $20 billion in additional aid for states and look like they are headed for a very significant spending increase for Medicare prescription drugs. There were no offsetting cuts for the former, and there almost certainly won't be for the latter either.

This reveals the tax-cut-deficits-don't-count proponents for what they really are - political opportunists. The argument is really nothing more than a rationalization for what these people want to do. The argument they make that spending-increase deficits are the only thing that we should be worried about is only a different way of saying that deficits caused by spending increases that they don't like are the only ones that are important.

This makes the arguments by tax-cut supporters little more than a way to set up the debate for when they are no longer in control.

It would be different if the only-spending-increase-deficits-count crowd were talking openly about what they saw as a need to decrease the size of the federal government by reducing spending. It would also be different if they argued about the difference to the economy between government and private spending. A strong argument can be made, for example, that when it comes to anything but pure public responsibilities, it is better to have a dollar spent by an individual or a business than the government because the economy will be more efficient when it is trying to meet consumer demands.

But tax-cut supporters are not saying either of these. As a result, the proper response is to tell them that they can't have it both ways. If deficits caused by higher spending are the work of the devil, then the deficits that have resulted from their preferred policies are actually a strong indication that the federal budget has already gone to hell.

Question Of The Week

Previous Question. The question from two weeks ago asked, if a lack of cash because the federal borrowing limit is reached doesn't shut down the government, what does? Many readers said that the answer was a huge snow storm in Washington, but that's not what we were looking for.

Technically, the government never completely shuts down. As became apparent in 1995 and 1996 during the most recent shutdowns, many critical federal services and functions continue regardless of what happens. But for most federal departments and agencies, a shutdown occurs when Congress and the president fail to enact funding legislation - either a regular appropriation or a continuing resolution - by the time the existing funding authority expires. Even then, some programs would continue until previously appropriated funds were spent or that funding was removed and permanently appropriated programs were repealed.

The winner of the "I Won A 2003 Budget Battle" mouse pad, who was selected at random from the very large number of people who responded to this question with the correct answer, is Julia Krauss of the Aircraft Owners and Pilots Association in Washington.

This Week's Question. This is a tough one, so two "I Won A 2003 Budget Battle" mouse pads will be awarded. The symbol for the British pound - £ - comes from the Latin word "libro," which means "pound." The question: Where does the symbol for the U.S. dollar - $ - which federal budget analysts obviously use every day, come from? One mouse pad will be awarded to the person who responds with the actual correct answer. The other mouse pad will go to the person who comes up with the best fanciful answer.

Click here to send in your response. Your answer must be received by 5 p.m. PDT on Saturday, June 21, 2003. The winners of the "I Won A 2003 Budget Battle" mouse pad will be selected at random from all those who submit correct responses. You must include your mailing address so the mouse pad can be sent if you are the winner.

Note to government employees: Because of security procedures at many offices and facilities, your home address will be the best way to make sure the mouse pad actually gets to you.

COMMENTS

• Hi. I'm unemployed and I like to work in iraq I did 4 yrs as a cav scout in the army and would like to know where or what links I could use to do so ty gary gary Posted April 27, 2004 12:09 PM
• This is a bunch of garbage. There is no difference in how the deficit is achieved! The deficit forces private capital out of the market by driving up costs until the public is removed from the market. Deficits hurt the poorest of the private sector first because the marginal investors are the first driven out of the market. The USA is paying to rebuild IRAQ. That money is diverted from the private sector that provides jobs and income for private sector units. Part of the money comes back to the USA in wages to citizens and purchase of goods, but when we hire IRAQ citizens, the money doesn’t come home. The US dollars spend overseas stay overseas. Therefore, the USA is increasing the supply of US dollars around the world; however, the demand for dollars is not increasing. Therefore, the dollar is falling in value relative to other currencies (the Euro has appreciated significantly since Bush started this bad foreign policy). The falling dollar will be painted as good by the administration and labor. A less valuable dollar will reduce import and increase exports and this is thought to increase employment in the USA and generate jobs for Americans. In the short run this is true and will help get Bush re-elected. However, as the USA increases exports and reduces imports they also reduce the capital flow to this country! A fall in capital will reduce the USA ownership of the means of production and while the "people" may be employed, it will become more and more common that they are employed by a foreign owned company (Honda in Ohio, BMW in So Carolina, Nissan in Ca and that is just the auto industry). As foreign company ownership grows, the policies and location of production become controlled outside the country and over time will change to reflect the foreign customs, values and beliefs. It is much easier to fight a terrorist with a gun than to fight foreign takeover of productive facilities with the dollar. Bush is taking the easy way out and allowing the ownership of productive facilities to fall into foreign hands. This is the beginning of the downfall of the American dominance of economic activity - watch the rise of the Chinese economy! GovExec.com reader Posted December 10, 2003 7:40 AM
• Good article (although somewhat biased) describing differences between tax-cut and spending-induced deficits. As a taxpayer trying to also save/earn retirement dollars, participating in public debt "earnings" (treasuries/savings bonds, etc)is great. This is a resource management "style" that's quite ingenious in my opinion!! GovExec.com reader Posted June 18, 2003 8:41 AM