Double or nothing
The budget President Reagan was going to propose to Congress in 1981 was called a "riverboat gamble" by some of the leaders in his own party. But what was being bet back then barely compares to what will be on the table next year as President Bush's fiscal 2004 budget is considered.
Although the final details are still subject to change, as of now it appears that the president's proposal will include a tax cut that will have a sizeable impact on revenues in 2003 and 2004, a substantial increase in the Pentagon budget, and an overall two percent increase for all other appropriations.
This is very close to what Reagan proposed more than two decades ago. The major difference is that Reagan's budget assumed a reduction in nondefense discretionary spending to reduce the projected deficits compared to what they otherwise would have been.
The Bush fiscal 2004 budget apparently will include no such limits on domestic and international appropriations. It will instead assume that the tax cut will create so much rapid economic growth that the deficit will fall without any spending cuts.
The stakes are enormous.
First, the White House is betting that its policies will increase economic growth almost immediately and keep it strong.
Second, the administration is gambling that its policies will have little or no impact on inflation or interest rates.
Third, the Bush team is wagering that its proposals will be good for the deficit.
But the political stakes are at least as important as the economic and budget bets that are being placed.
For example, a large tax cut that does not increase economic growth as quickly and by as much as promised could spell the end of any credibility for the supply-side theories that have been in and out of vogue since the Reagan era. The tax cuts simply have to work as promised. They will be too visible and too identified as the economic policy of this administration and the Republican Party for anything or anyone else to take the blame if the economy does not grow as we will be told to expect.
In addition, the claim now being repeated so often by tax cut supporters - that there will be no increase in interest rates as a result of the deficit - had better be right. Home ownership and consumer credit are so important to the U.S. economy these days that any increase in borrowing costs will have an almost immediate negative economic and political impact.
This especially will be the case for middle-income homeowners - one of the largest blocks of voters and the one that both parties strive so hard to get and keep. If the claims are incorrect, then the mortgage and credit card payments for taxpayers in this group could increase far more than the tax cut they will receive under the Bush plan.
Finally, the Bush administration is betting the farm on the deficit. The White House will be saying that the deficit will not increase because of its budget policies, or that it will make no difference even if it does go up as dramatically as some are suggesting could happen.
Either way, if the deficit does again become an issue (because it rises or because the increase is more worrisome to voters and the bond market than expected), the White House and the Republican Party will end up taking the substantial political heat that will result. Unless Democrats push for big spending increases next year, for the next decade this deficit will unambiguously belong to Bush and the Republican-controlled Congress.
Why would the administration wager so much on this year's budget debate?
On the one hand, it may truly believe that its policies will work as promised and, therefore, that the odds are absolutely in its favor.
On the other hand, it may have decided that regardless of their impact on the economy or budget, it wants to get the biggest possible tax cut in place while it has the votes and public support to make it happen.
Either way, it might be best to remember that when betting, the odds are always with the house.
Question Of The Week
Last Week's Question. There was no doubt about this week's winner of an "I Won A 2002 Budget Battle" coffee/tea/hot chocolate mug. The question was, "What is the most appropriate thing to wish someone involved in the federal budget process at this time of year?" Patrick Johnson, vice president for health policy and development for HealthInsight in Salt Lake City, wins for this incredible list, which includes something for every federal budget watcher and participant everywhere:
- An understanding spouse or partner with saint-like qualities,
- An ability to function without sleep for long periods of time,
- Pictures of yourself for your children, lest they forget you,
- A dog that loves you and won't bite you after not being walked for several weeks,
- A computer system that does not crash,
- A sudden upturn in the economy for which you can take credit,
- A high tolerance for caffeine and pizza,
- A window in your office,
- Avoidance of maladies including carpal tunnel syndrome and computer-caused eye glazing and fluttering,
- Sustained periods of time when you can call out but no one can call in,
- Same for your e-mail
Honorable mention (but no mug) to Thomas Feeney, who works for the Federal Deposit Insurance Corporation in Washington for this wonderful wish:
May revenue rise to greet you
and deficits stay afar.
May all your interests see full funding
and accountability be your star.
May tax cuts lead to more receipts
and Laffer cure your ills.
May the chairmen bless your wisdom
and Congress pass your bills.
May budget discipline abound
with everything that's done.
May your estimates match reality
next year in Washington.
This Week's Question. This is it! Your last chance to win an "I Won A 2002 Budget Battle" mug that will remind your colleagues, friends and family that you really are a federal budget genius after all. Here's the question: What was the color of the cover of the fiscal 1976 budget submitted by President Ford?
Send your response to scollender@nationaljournal.com by 5 p.m. PST on Saturday, Dec. 21, 2002. You must include your mailing address so the mug can be sent if you win. If there are duplicate winning responses, the winner will be selected at random from that group.
Last Week To Save $100
You can qualify for the special $100 discount for "Houston, We Have A Budget," the special executive briefing on next year's budget debate presented by "Budget Battles" columnist Stan Collender on Jan. 28, only if you register by Jan. 1, 2003.
In just three hours, you will learn everything you need to know about what's likely to happen as Congress debates the fiscal 2004 budget, spending and tax bills, and what it means for your company, association, department, agency or clients.
Why is the briefing called "Houston, We Have A Budget"? Because next year's budget debate could be out of this world.
You can click here for the full agenda or take a look at just some of the questions that will be answered:
- Will the deficit really take off like a rocket next year?
- Will the debate take as long as a trip to Mars?
- Who will be the Yoda-like person who takes over as the new director of the Congressional Budget Office?
- As The Borg might say, is resistance to the Bush tax cut futile?
- Will federal budget forecasts be no clearer than looking through the Hubble telescope?
- And who will be the Captain Kirk, Darth Vader and Mr. Spock of the fiscal 2004 budget debate in Congress?
- The briefing will be held in Washington from 8:30 a.m. to 11:30 a.m. on Jan. 28, the same day as the State of the Union Address and only five days before the Bush 2004 budget will be sent to Congress.
- In other words, this briefing will be held at the exact time you will need it the most.
The briefing's cost is the same as last year - $299 per person for registrations received by Jan. 1, 2003, and $399 per person for registrations received after that date. Group discounts also are available.
For more information or to register online, click here. You can also register or receive more information by contacting Beverly Campbell (campbelb@fleishman.com or 202-828-9712).