Bush Gets Medicare Bill, Strong 3rd Quarter GDP Figures, and Ballooning Deficits
I believe in giving credit where credit is due. According to flash wire service reports, as I write this, George W. Bush just got his Medicare drug benefit and “get out of jail free” card from the AARP moments ago when the Senate passed the bill by a closer than expected 54-44 vote. The Post's E. J. Dionne today pins the blame for the Democrats' failure on this issue where it belongs: Max Baucus and John Breaux. He should also mention Tom Daschle, who put these guys there and agreed to the GOP's terms of participation. Dionne does point out the bigger problem, one I want to explore in coming weeks, which many of you have commented on, that the Democrats and their leaders at this point just don't play the game effectively against a ruthless and tactically superior opponent.
Bush also got more good news this morning when the government revised significantly upward the third quarter GDP figure to an astounding 8.2 % increase, up from the previously estimated 7.2% increase. As economists expected, consumers and businesses took the latest round of Bush tax cuts and seemed to spend most if not all of it right away. Auto production, software purchasing, and residential construction were all up significantly in the third quarter.
Now we wait for the job growth.
And as a good bookend to this news comes a piece by the New York Times’ David Rosenbaum detailing how both ends of Pennsylvania Avenue have given up any pretense of fiscal discipline in the rush to buy votes.
Already, the $374 billion budget deficit in the fiscal year that ended on Sept. 30, by far the largest dollar amount ever, is likely to rise to $525 billion in this fiscal year, the economists at Goldman Sachs estimate.
If that is the case, the annual budget picture will have deteriorated by more than $650 billion during Mr. Bush's term as president, from a surplus of $127 billion in the 2001 fiscal year, his first year in office.
The president and his advisers attribute the turn for the worse mainly to the recession, the need for more domestic security in the aftermath of the terrorist attacks, and the conflicts in Afghanistan and Iraq. But the tax cuts and benefit increases enacted this year were not primarily a response to those developments.
Since the Medicare drug benefit doesn’t contain drug cost containment measures for fear of hurting the bottom line of Bush’s Big PharMa contributors, the real cost of the bill just passed will balloon in future years, as will the true costs of the Bush tax cuts.
Many health experts expect drug prices to rise more than Congress anticipated in the Medicare legislation. And there will surely be fierce pressure on politicians to eliminate what is called the doughnut hole in the new prescription drug benefit: the lack of coverage for drug expenses each year that exceed $2,250 but are less than $5,850.
On the revenue side of the ledger, early expiration dates, called sunsets, were written into the tax bill this year to hold down the official 10-year cost. Tax breaks for married couples and bigger child tax credits are supposed to end after next year. Lower tax rates on dividends and capital gains are supposed to be terminated after 2008.
Few political analysts expect Congress to allow these measures to expire, and if they are extended, the lost revenue in the tax bill over 10 years could be as much as $800 billion, not $300 billion.
These calculations do not count what in budget terms is called discretionary spending, including the $87.5 billion the president proposed and Congress approved this fall to occupy and rebuild Afghanistan and Iraq.
"One can't expect Congress to lead the charge when it comes to fiscal restraint," said Robert D. Reischauer, a former director of the Congressional Budget Office and now president of the Urban Institute, a research center. "They will follow the president's lead. If the president is into tax cuts and spending increases, they are going to do him one better."
We’ll see fiscal restraint return after the 2004 election, when Bush, if he survives election through the help of Diebold and Sequoia, will savagely go after nondefense discretionary spending, using his own deficits as a pretext for slashing spending, once the election is behind him and no more votes need to be bought. By then though, the structural imbalance between revenues and expenses will be so large that Bush will be leaving his successor with a nearly unsolvable problem, thereby doing exactly what he said he wouldn’t do: passing responsibility on to his successor to fix his mess.
Unless of course we just grow our way out of these deficits, right?