Paying for Katrina

Congress already has passed $62.3 billion in Katrina-related emergency appropriations, and the White House has informed Capitol Hill that more money will be needed in October. Speculation about the next request centers on another $50 billion, while Katrina’s total cost could exceed $200 billion.

Before Katrina stuck, the mid-session review of the White House Office of Management and Budget projected deficits of $333 billion in fiscal 2005, which ends Sept. 30, and $341 billion for fiscal 2006, which begins Oct. 1. If fiscal business-as-usual was dangerous before Katrina, then in a post-Katrina world it is undeniably disastrous. Yet, no less than House Majority Leader Tom DeLay was initially in denial. In the wake of the $62.3 billion in emergency appropriations for Katrina, Mr. DeLay said that the Republican-controlled Congress had already removed the fat from the federal budget. “My answer to those who want to offset [Katrina] spending is, ‘Sure, bring me the offsets,’ ” he said. “I will be glad to do it, but no one is able come up with any yet.”

To its credit, the conservative Republican Study Committee (RSC) accepted Mr. DeLay’s challenge. This week the RSC released a detailed 23-page report identifying and explaining a menu of more than 100 specific budget offsets that total nearly $1 trillion over 10 years, including $102 billion for 2006 and nearly $400 billion over the first five years.

The object isn’t to embrace all the RSC’s recommendations. For example, while this page enthusiastically supports the RSC’s call for eliminating the nearly 6,500 earmarks totaling roughly $25 billion that were included in the recent highway/transportation bill, we disagree with the RSC’s proposal to delay the Medicare prescription-drug program by one year, which would save an estimated $31 billion. Given that the Medicare drug program would still go into effect in 2007 and given that seniors have already begun planning based on the government’s extensive education program, our view is that delaying implementation by one year would not buy enough fiscal probity for the damage it would cause to a program considered essential by its beneficiaries.

Nor should the RSC’s list be considered the full range of options. (It doesn’t purport to be.) For example, we think the RSC report recommends far too little savings from agricultural subsidies, including direct government payments to farmers that have averaged nearly $18 billion per year over the previous six years, according to a recent Cato Institute study. Perhaps because the Republican red states are filled with farmers who rake in the cotton and grain subsidies, the RSC extracted less than $1 billion in offsets over 10 years (and a mere $31 million for 2006) from a proposal to reduce farm-payment acreage.

Cumulative offsets, of course, must receive the approval of 218 House members and 50 senators, with the vice president casting a tie-breaking vote. Getting to 218/50 is not easy. Everybody has categories that must be excluded. (As the nation prosecutes the war on terror, protected categories include defense and homeland security, because both areas are already underfunded and any worthwhile savings from one program could help satisfy the underfunded needs of another.)

Nevertheless, the RSC report, which is appropriately titled “Operation Offset,” represents an excellent starting point. In addition to canceling the highway earmarks, we were intrigued by the 10-year savings available from increasing the Medicare Part B premium from 25 percent to 30 percent ($85 billion); verifying the income of participants in the fraud-ridden Earned-Income-Tax-Credit program ($85 billion); dropping wealthy communities from Community Development Block Grants ($9.1 billion); eliminating federal funding for the Legal Services Corp.($4.6 billion) and the Corporation for Public Broadcasting ($5.6 billion); restructuring Medicare’s cost-sharing requirements by increasing protection against catastrophic costs while reducing coverage of more predictable expenses ($88 billion); and imposing a Medicare home-health-care copayment of 10 percent ($31.5 billion). Back to you, Mr. DeLay.

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