The Danger of the Deficit


Published February 08, 2008, issue of February 08, 2008.
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Entering his last year in office, President Bush might have been expected to acknowledge the bleak political landscape and to tread modestly. He has lost both houses of Congress, the confidence of most Americans and much of the world’s good will. His agenda has been repudiated, at home and abroad, and there’s no time left for a comeback.

You’d think he would fix his eye on posterity, read the nation’s pulse and aim to leave America more united and better prepared for the future than it is today. But that is not Bush’s way. True to form, he has decided to take one more whack with the wrecking ball.

That’s the message in the federal budget that the president submitted to Congress this week. Its guiding theme is neither reconciliation nor smooth transition, but defiance to the last. It is a budget that raises federal spending to an unprecedented level, projects big increases in military spending and big cuts in domestic social spending, reduces aid to the poor and preserves Bush’s tax cuts for the wealthy — all on the eve of a recession.

The president’s budget proposal is full of superlatives, most of them bad. It is the first in history to top $3 trillion. It boosts the Pentagon’s budget by 7.5% to $515 million, the highest in real dollars since World War II. And that doesn’t count the $70 billion budgeted for the wars in Iraq and Afghanistan, which is only a fraction of what those wars will actually cost.

Domestic social spending, on the other hand, faces painful cuts. No fewer than 151 social programs are to be reduced or eliminated. Federal highway aid to the states is cut by two-thirds, energy aid by three-quarters. The Centers for Disease Control and the Environmental Protection Agency lose hundreds of millions of dollars each. Home-heating aid is slashed, even as fuel costs skyrocket.

Growth of Medicare and Medicaid is slowed to a minimum, forcing service cuts as real costs keep rising. Medicare, which aids the elderly, would offer lower payments to doctors and hospitals, reducing patients’ options. Medicaid, the federal-state partnership for the poor, would get a lower federal contribution, increasing the burden on state budgets just as a recession threatens lower state tax revenues.

Closer to home, the budget eliminates the $80 million-per-year Department of Homeland Security assistance to non-profit institutions for security, although homeland security overall is increased by $4 billion. The non-profit program, instituted in 2005, is used mainly by Jewish institutions, which face the most serious threats.

With spending up, taxes kept down and incomes stagnating, the budget predicts a huge deficit of $400 billion, close to the record high of $413 billion set in 2004. The actual deficit will almost certainly run far higher, setting a new all-time record, when all the war costs are counted.

Adding this deficit to the ones before, the accumulated national debt when Bush leaves office will be nearly $10 trillion. Of that, $4 trillion was piled up during the Bush presidency.

Some say the total national debt doesn’t matter, since we owe it to ourselves. That was true once, but no longer. Fully one-fourth of the debt is now owed to foreign creditors, nearly half of it to the central banks of Japan and China. Put differently, a serious chunk of our accumulated debt is owed to two foreign governments, one of which is hardly our friend.

Back in September 2004, on the eve of the Day of Atonement, this newspaper editorialized that the ballooning of the national debt under Bush, and the growing share held by foreign governments, could leave America dangerously vulnerable to other nations’ dictates.

At the time, those other nations — particularly China — were too closely tied to the American economy to consider undermining it by cashing in their loans. That’s no longer true. China has diversified its markets dramatically, reducing its dependence on our success. More recently, other countries have begun fleeing the collapsing dollar, mostly for the euro. As the dollar loses its dominance in world markets, America is losing its global economic dominance. That will lead, sooner rather than later, to the shrinking of the superpower. That’s bad news for America, but it’s disastrous for friends that depend on American power, especially Israel.

As it reworks this budget, Congress will want to punt on the deficit. They have to raise social spending, they won’t want to cut military spending and they’re afraid to raise taxes. They will figure the deficit can wait until tomorrow. But it can’t. Tomorrow is here.

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