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A number of "Budget Battles" columns over the past seven years have been called "Budget Buffet." Rather than present a single subject for everyone to chew on, they served up a variety of shorter fiscal finger food suitable for snacking. This week's installment, however, takes that concept to new heights by having a buffet about a single subject - the deficit.

No Impact?

Any doubt about whether the deficit really has much of an impact should have been completely wiped out in the days following the recent blackout, when the call for the federal government to spend $50 billion to rebuild the electric grid in the northeast was all but dismissed because of the budget situation. The price tag was said to be more than Washington could afford because of all of its red ink.

The situation undoubtedly would be very different if the 10-year, $5.6 trillion surplus projected only a few years ago still existed. Rebuilding the grid would have been almost a certainty because what now appears to be unaffordable would have been less than 1 percent of such a surplus.

This is one of the biggest problems the deficit will cause in the years ahead; the federal government will have fewer resources and even less political maneuvering room to meet current needs.

Wall Street and the Deficit

Jonathan Weisman of The Washington Post reported several weeks ago that some Wall Street economists, many of whom support the policy of running big deficits in fiscal 2003 and 2004, are starting to get antsy about the red ink now projected for 2005 and beyond.

What these economists don't seem to realize, or perhaps don't want to admit, is that they bear some of the blame for this situation: The policies they supported to get the short-term deficits are the same ones that will be causing the long-term problems.

Many of the folks on Wall Street to whom I talk regularly have said the permanent changes in tax and spending laws that increased the deficit were the right policy because the economy needed to be stimulated. Similarly, they add, permanent changes to reduce the shortfall will be appropriate when stimulus is no longer needed.

The problem is that while the economic theory of fiscal policy may be symmetrical, budget politics is anything but. Spending cuts and tax increases are always much, much harder to enact, and that must be taken into account when spending reductions and tax cuts are considered.

We Can't Do Everything, Unless...

Congressional Budget Office Director Douglas Holtz-Eakin did a brilliant job last week when he released CBO's updated economic and budget outlook. His remarks, which were covered by a record number of camera crews and could be seen live on C-SPAN, were direct and pulled few punches.

In his remarks, Holtz-Eakin said the current budget situation meant that the government could not do everything. That, in fact, is the bottom-line reason you have a budget in the first place: There is never enough money to do everything that everyone wants to do. Otherwise, we could replace CBO with a congressional check-writing office.

Holtz-Eakin's comment, however, may not quite ring as true now as it has in the past. If, as the White House says, deficits don't matter, than we can do everything without worrying about whether there's actually the money to pay for it. This makes you wonder why anyone is concerned about the cost of rebuilding the electric grid in the northeast.

Just Spending Restraint, Huh?

CBO's new budget baseline projects a fiscal 2004 deficit of $480 billion. Spending on non-defense appropriations is projected to be $448 billion. If you assume that defense spending will not be cut, that Social Security is still sacrosanct, and that Medicare spending will increase when a prescription drug plan is enacted, this means that every dollar of all other appropriations could be eliminated and there would still be a deficit.

Since eliminating all domestic federal departments - or even cutting their funding by 10 percent - is highly unlikely, the notion that spending restraint alone will be sufficient to deal with the deficit is preposterous and nothing more than spin.

CBO's New Numbers

As expected (see "Budget Battles," Aug. 20), the new CBO budget update shows the deficit reaching $401 billion in fiscal 2003 and $480 billion in 2004. And next year's deficit could easily be much higher. In one of the most valuable sections of the report, CBO provided the impact of a number of "alternative scenarios" - that is, pending or potential legislation that is being discussed seriously and so is considered highly possible. This includes the enacting of a prescription drug plan and increasing appropriations by the historical annual increase rather than at the rate of inflation. Those two assumptions alone would add approximately $33 billion to the projected deficit, putting it well over $500 billion for fiscal 2004.

Question of the Week

Previous Question. There are almost four weeks still to go before fiscal 2004 begins, so there is no way to know the correct answer to the question from two weeks ago: How many of the 13 fiscal 2004 appropriations will be signed into law by Oct. 1? If you were on vacation or just couldn't deal with the federal budget during the last two weeks in August, the judges have decided to extend the deadline for submitting a response. You don't even need to know anything about the budget to take a stab at this one. All you have to do is pick a number between zero and 13.

This Week's Question. It's football season again, the time when Saturday and Sunday afternoons are devoted to something other than the federal budget and when "I Won A 2003 Budget Battle" mouse pads are used as oversized beer coasters. That makes this one of the best times of the year to try to win one so that you can impress your friends and save a coffee table. The question: Which federal department or agency releases the final totals for each fiscal year?

Click here to send in your response to either the previous or current week's question. Your response to either must be received by 5 p.m. PDT on Saturday, Sept. 6, 2003. If there are multiple winning answers, the "I Won A 2003 Budget Battle" mouse pad will go to the person selected at random from all those who submit the correct response. 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

• Why is the federal government expected to rebuild the power grid in the northeast? This is the responsibility of the regional electric companies. This is why we have a huge deficit to begin with. Many expect the federal government to pay for everything under the sun, including roads, healthcare, schools, AMTRAK, etc. The constitution requires Congress to provide for the national defense. Everything else is secondary and/or can be done by the states and local goverments. When we stop expecting the federal govenment to pay for programs that are not a federal responsibility, that is when the deficits will get back under control. Congress should have supported the constitutional amendment requiring the federal govenment to balance its budget each year. Every state except Vermont is required to do so by their state constitutions. This would keep pressure on the desire in Washington to continually spend more taxpayer money. John Posted September 3, 2003 7:37 AM