Katrina and Deficits: Right Topic, Wrong Questions

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http://www.motherjones.com/commentary/columns/2005/09/katrina_and_deficits.html

 

Katrina and Deficits: Right Topic, Wrong Questions

 

Commentary: What about the much worse fiscal damage done by Bush's

economic policies?

 

By Gene Sperling

 

September 22, 2005

 

 

The costs of Katrina have served as a fiscal tipping point that has

finally put our escalating budget deficit back on the political radar

screen – even for some Republicans. Yet, while the renewed focus on

rising deficits is a step in the right direction, unfortunately, the

entire discussion has been reduced to the question of " how should we

pay for Katrina? " With apologies to thousands of fourth grade

teachers, there is such a thing as a bad question, and this is a

textbook example.

 

Getting the question right is no small matter. Focusing national

attention solely on finding the one-time savings to pay for the

one-time cost of this horrible natural disaster risks distracting us

from the far more damaging long-term fiscal deterioration caused by

the administration's man-made economic policies.

 

Why is it that the entire policy establishment and press corps have

only asked how we can pay for Katrina, but have virtually never asked

how we can pay for the dramatic, perpetual costs of permanent

marginal, estate, dividend and capital gains tax cuts for America's

most fortunate or the escalating tab for the president's prescription

drug bill? How is it that the media repeatedly ask how we will pay to

rebuild the communities and lives devastated by Katrina, but never ask

how we will pay for the $500 billion it will cost us during the next

decade to implement the president's proposal to eliminate the estate

tax for the very few well-off couples with estates over $5 million?

 

Consider the following: prior to Katrina, Goldman Sachs estimated that

the next 10 years – which had been projected to be surplus years when

Bush took office – will now see a cumulative deficit of $4.75

trillion. Projections from Economy.com came in lower, but still over

$4 trillion, while the bipartisan Concord Coalition had projected an

even higher $5.7 trillion deficit. It is this dramatic swing from

projected 10-year surpluses of over $5 trillion to near $5 trillion

deficits – and not the one-time costs of Katrina – which poses the

most serious threat to global economic stability, our long-term

national savings rates, and our ability to address Medicare and Social

Security, while still investing in our children. Simply finding

one-time savings to pay for the one-time costs of Katrina just means

that Goldman Sachs' estimate will stay at $4.75 trillion and not $5

trillion. Not a staggering accomplishment.

 

Indeed, while finding one-time savings for a one-time crisis does

virtually nothing to ameliorate long-term fiscal deficits, efforts

that strengthen our long-term fiscal position can make it far easier

to deal with one-time costs of war or crises without damaging economic

effects. Indeed, a primary justification for long-term fiscal

discipline has been to save for the proverbial rainy day, and as we

saw with Katrina, actual rainy days as well. The rainy day savings of

the 1990s – which led to a $5.6 trillion projected 10-year surplus

when President Bush took office – gave America a fiscal cushion to

help us handle these economic and security challenges.

 

If the Bush administration faced the $400-$500 billion projected

annual deficits that it is primed to leave to its successors, the $700

billion a year fiscal deterioration under its watch could have pushed

the deficit above $1 trillion—an unsustainable 10 percent of our GDP.

Such unprecedented deficits could weaken our capacity to respond to

economic and security crises without destabilizing economic effects.

For Americans who are not only witnessing the destruction from

Katrina, but darkly wondering about the even worse costs of a future

disaster or terrorist attack, the notion that the Bush administration

is leaving future administrations in such a tenuous fiscal situation

should be of great concern.

 

The White House tries to shun responsibility for what former Nixon

Secretary of Commerce Pete Peterson has called " the worst financial

deterioration in our history " by falsely suggesting that the run up

was due only to war and recession. This is not even close to true. The

largest cause of today's fiscal deficits has been the administration's

insistence on passing tax cuts and at least one major new entitlement

bill without ever asking – no less taking seriously – how they should

be paid for. Indeed, the cost of these unpaid for Bush initiatives is

higher in a single year than the highest multi-year estimates of the

costs of rebuilding after Katrina.

 

The right course for progressives is to combine measures to improve

our long-term fiscal path with a strong " putting people first "

response to Katrina. This response should include proposals for tax

incentives linked to job creation and higher wages, retraining for the

unemployed, increased housing choice, and assurances that, to the

greatest degree possible, rebuilding jobs with decent prevailing wages

will go to the displaced. What will be most important for our fiscal

future is not whether we pay for every penny of Katrina, but whether

we use this period to reevaluate who truly benefits from this

administration's deficit exploding policies, who is being asked to

sacrifice, and whether or not these choices are consistent with our

values of generational responsibility and our commitment to building a

stronger, more inclusive middle class with more opportunity for those

struggling to work their way up.

 

Of course, if part of a progressive package to restore fiscal

discipline includes long-term savings from not extending tax cuts to

individuals making over $400,000 and estates over $5 million per

couple, the White House will simply say, " the last thing in the world

we need to be even thinking about is raising taxes. " Yet, those who

can put supply-side ideology to the side for even a moment should

pause to ask: Can we still afford both unnecessary spending and

subsidies as well as extending new tax cuts for those with the highest

incomes if we are to have the fiscal strength to best confront the

known challenges of Medicare, Social Security and education as well as

unknown costs of future natural disasters and national security

crises? Pardon my immodesty, but that seems like a good question.

 

Gene Sperling is a senior fellow at the Center for American Progress.