Union Tribune

February 4, 2003

Bush takes gamble on long-term deficits

By FINLAY LEWIS and GEORGE CONDON JR.
COPLEY NEWS SERVICE

WASHINGTON Less than five years after his predecessor declared that "America can now turn off the deficit clock," President Bush's new budget leaves no doubt that the clock is ticking louder than ever and that a quick return to surpluses is increasingly unlikely.

Just last year, Bush promised he would preside over deficits that would be "small and short-term." But his budget for the 2004 fiscal year indicates that the shortfalls will be large and long-term.

The budget represents a gamble that voters will agree that deficits are less important than deeper tax cuts and higher spending on the military and homeland security.

Bush is also betting that he can use the deficit to argue against Democratic plans to boost domestic spending.

At the same time, analysts suggest the president might be disregarding deficits at his peril. If economic conditions worsen, Bush's gamble could damage his re-election prospects next year.

The context could be a double-dip recession that causes unemployment to rise or interest rates to spike, foiling dreams of homeownership. That could expose Bush to the kind of challenge that helped doom his father's presidency in 1992, when Ross Perot made his opposition to deficits the centerpiece of his third-party insurgency.

"At some point, the deficit will cross a threshold that will be disturbing," said Stanley E. Collender, a budget expert for Fleishman-Hillard Inc., an international communications firm. "Regardless of what kind of public relations the administration does, it will still start to worry people."

White House officials are banking on a short war in Iraq and a robust economic recovery. They also are hoping voters won't measure the deficit by its absolute number $307 billion next year and $1.08 trillion over five years but will instead see it as a percentage of the overall economy.

In 1983, the deficit under President Reagan amounted to $208 billion, or 6 percent of the American economy at the time. In comparison, the $307 billion projected for next year would be 2.7 percent of the nation's anticipated gross domestic product.

"The reason we're not hearing more from the budget balancers is because the deficit doesn't look as serious as in the 1980s," said Rudy Penner, a former head of the nonpartisan Congressional Budget Office. "More people are using economic weakness, war and terrorism as something of an excuse to run a deficit."

But it contrasts sharply with President Clinton's announcement in 1998 that 40 years of deficits had turned into a surplus.

"America can now turn off the deficit clock and plug in the surplus clock," said Clinton, who two years later announced that the national debt could be retired by 2012.

That target is less than nine years away, but Bush's new budget shows a rapid increase in the debt.

And those trend lines might be too conservative. Many independent budget analysts say that the administration has significantly underestimated the likely size of future deficits, particularly in view of the possibility of a war against Iraq.

Bush is taking a different tack from his predecessors regarding deficits. Both former presidents Bush and Reagan approved tax increases and Clinton always kept deficit reduction a goal. The president is moving aggressively in the opposite direction by insisting on huge tax cuts, saying they will stimulate the economy.

"This president is more in tune with Ronald Reagan than even Ronald Reagan was on everything that's at the core of Republican beliefs, including the relative importance of tax cuts and budget deficits," said Tom Mann, a political analyst with the Brookings Institution.

Mitch Daniels, the president's budget director, indicated that Bush's tax-cutting plan accounts for more than one-third of the size of the administration's projected deficit.

But Republican strategists are dismissive of Democratic efforts to capitalize on it.

"Sept. 11 changed the political equation on deficits," said Glen Bolger, a Republican pollster. "People understand why we've got them and what it means. . . . It's harder for the Democrats to blame Bush and have it believed by the voters."

Said budget expert Collender: "The problem with the deficit as an issue is it has always been a surrogate for something else either interest rates or the economy tanking or something. If none of those things are occurring . . . then it's going to be tough to connect those dots."

Difficult or not, Democrats will attempt to do just that.

Kiki McLean, a Democratic consultant, said her party's presidential candidates must do two things if they are to get any political benefit from the deficits. First, she said, "they must remind everybody of what a healthy economy looked like in the 1990s when you had surpluses with the Clinton-Gore policies."

In addition, she said Democrats "must keep reminding voters that Osama bin Laden did not cause the tax cut and did not cause the deficits."