Tax cuts and debt reduction: Bush will say there's enough money for both
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WASHINGTON - President Bush, in his first address to Congress, will assert Tuesday that his budget plan effectively would eliminate the national debt over the next decade, even after accounting for his $1.6 trillion tax cut and his goal of creating private Social Security accounts, aides said yesterday.
Unlike former Vice President Al Gore, Bush rarely emphasized debt reduction on the campaign trail, though aides sometimes suggested his plan would pay off the debt by 2016.
But now, armed with higher surplus projections and a new method of calculating how much debt could be paid off, Bush will deliver the message that big tax cuts and significant debt reduction are compatible.
One recent poll indicated that many Americans favor protecting Social Security and greater spending on certain domestic programs than cutting taxes or reducing the debt.
Grab back the spotlight
Bush's speech will follow an unusual debut for a new administration whose policy agenda has been overshadowed by the uproar surrounding former President Clinton's pardons. Aides view the address as Bush's best chance to regain the nation's attention and the first step in educating Americans on the president's new budgetary math.
Indeed, Bush's economic aides think the 10-year window used for budget discussions has obscured the fact that, under present projections, the surpluses will likely grow by as much as $800 billion in each year of Bush's term.
With Congress almost evenly split between Republicans and Democrats, Bush also will need to address concerns raised by some members of his own party that his proposed tax cut is too pricey.
Democrats also are proposing a tax cut, although about half as large as the Bush plan and targeted at the less affluent.
Opportunity for Democrats?
Democrats have had trouble organizing a unified response to Bush, and eagerly view the unveiling of the his budget as their first opportunity to challenge the president's tax and spending plans.
"There is no way it adds up," said Sen. Kent Conrad, D-N.D., the senior Democrat on the Budget Committee. "You talk about fuzzy math - this is it. They will say all the right words. But they won't have the right numbers."
Bush in recent weeks has emphasized areas of the budget he would increase, such as education, but hasn't publicly tipped his hand on which agencies would face cuts. "My budget blueprint will restrain spending yet meet growing needs with a reasonable 4 percent growth rate, which is a little more than inflation," Bush said yesterday in his weekly radio address. "After paying the bills, my plan reduces the national debt - and fast."
Democratic aides on the House Budget Committee have estimated that, given the increases Bush already has outlined, the rest of the government would face cuts of 1.5 to 4 percent from projected budgets in the next year and as much as 10 percent over the next decade.
No details yet
While Bush will not provide a detailed budget until April, he will release this week an outline of his plan for the fiscal year starting in October, plus a 10-year projection to explain how he would fund his tax cut and pay down the national debt with the estimated $5.6 trillion in surpluses.
Democrats think Bush is putting off hard choices now - such as how much to set aside for his missile-defense plan - while relying on long-term projections that they say are highly uncertain.
Moreover, Democrats have argued, Bush's tax cut is too big, his debt reduction is too small, and he plans to tap the surpluses in the Medicare hospital trust fund to pay for his initiatives. In his budget, Bush will tackle the complaints head-on, arguing that his tax cut is responsible, that he would pay down the debt as rapidly as possible and that he would not need to touch the Medicare moneys.
Bush's new goal could blunt one of the Democrats' biggest arguments against the size of Bush's tax cut.
Just yesterday, Gov. Tom Vilsack of Iowa said in the Democratic response to Bush's radio address that his party's approach balances the need to cut taxes and pay for national priorities with "the need to pay down and pay off the national debt."
Calls it 'shrewd move'
When told of Bush's debt-elimination plan yesterday, Vilsack called it a "shrewd move" designed to pick up Democratic votes for the administration's budget and tax cut. While saying he wanted to study the details, Vilsack said such a policy would be "a positive thing for the economy."
One of the most important goals of Bush's speech is to convince Americans that it is impossible to pay off the federal debt. The Bush team has embraced a concept recently advanced by Federal Reserve Board Chairman Alan Greenspan that up to one-third of the $3.2 trillion in publicly held national debt can never be retired without substantial costs. If correct, this notion substantially moves forward the goalposts for paying off the debt, making it much easier for Bush to adopt Clinton's pledge of total debt reduction and yet have room in his budget for his tax cut and other priorities.
The Congressional Budget Office, in fact, recently estimated that only about $2.4 trillion could be retired by 2011, but some experts think the number could be even lower than $2 trillion.
There are two main reasons why not all of the debt can actually be paid off, allowing Bush to claim he would pay off as much debt as possible.
First, a large chunk of debt won't mature before 2011 and is held by foreign governments for foreign exchange and other purposes, meaning they would be unwilling to sell the bonds back to the U.S. government without being paid a hefty premium. In 1890, the last time the government ran large surpluses and purchased debt that hadn't matured, the premium was about 25 percent.
Second, the publicly held debt also includes hundreds of billions of savings bonds, state- and local-government issues used for investing the funds from local bond projects, bonds held in the federal employee Thrift Savings Plan and other securities that likely cannot be repurchased. Experts say these bonds shouldn't be considered as part of the overall debt burden.
Bush, along with the congressional leadership, is committed to using $2.6 trillion in projected Social Security surpluses over the next 10 years to pay down the national debt. But because that goal could be reached with just $2 trillion, under the Greenspan debt concept, at least $600 billion would be left over to help fund Bush's proposal for private Social Security accounts.
"There is enough money in the budget to pay down as much of the debt as we think possible and to start a personal account program," said Lawrence Lindsey, Bush's chief economic adviser.
Information from the Los Angeles Times is included in this report.