- The Washington Times - Monday, January 28, 2002

At least two things can be said of the budget deficits being forecast for this year and next. They will be relatively modest, and they will be

temporary.

I hate to disappoint the Democratic leaders who think that they can ride the deficits to victory in this year's midterm elections, but most Americans especially people who run businesses know that revenues can decline in bad economic times. Sometimes you have to borrow to meet pressing bills. That is what is happening now.

Budget Director Mitch Daniels wisely briefed reporters to get the deficit news out of the way early before President Bush sends Congress his proposed 2003 budget plan on Feb. 4. But, actually, the deficit numbers were not as bad as some had feared.

It comes as no surprise that the government will run a deficit of about $100 billion this year. After all, we are in a recession, and the economy stopped growing in the third and fourth quarters, flattening rising tax revenues that were feeding the surpluses. We are also in a costly war against terrorism the tab for the war in Afghanistan alone is $1 billion a month that has led to an explosion in spending.

Still, this year's deficit is low by historical standards. As a share of our $10 trillion-a-year economy, it represents 1 percentage point of the gross domestic product. We are talking about 5 percent of a $2 trillion-a-year budget.

Happily, the budget that Mr. Bush will soon propose for 2003 calls for a smaller deficit, about $80 billion. Mr. Daniels says the deficit will shrink further as the economy picks up, and that there is a very good chance of getting back into surplus territory by 2004.

"We look forward to resuming debt reduction by as early as 2004," he told a group of reporters at a White House briefing.

The reason for this turnaround forecast: renewed economic growth that will bring more tax revenues into the Treasury over the next two to three years. The White House Office of Management and Budget, which Mr. Daniels directs, cautiously forecasts some might say too cautiously that the economy will grow by 0.7 percent this year and by a much stronger 3.8 percent next year.

The nonpartisan Congressional Budget Office is more bullish in its economic growth forecasts. The CBO estimates that the economy will grow by 0.8 percent this year and a more robust 4.1 percent in 2003.

If the economy rebounds more quickly, the deficit numbers will shrink that much faster. And I'm betting that economic growth will be a bit stronger than the OMB and CBO are projecting this year, especially if a stimulus bill gets passed next month.

The long decline in manufacturing seems to be tapering off as businesses move to replenish reduced inventories. Layoffs are slowing. The housing markets remain strong. And a wave of mortgage refinancing last year as a result of lower interest rates has left more money in homeowners' discretionary income accounts.

Meantime, the country will not rise or fall, or even burp, as a result of this year's deficit. We are in a wartime crisis in which our national security is threatened, and we must increase spending on military and homeland defenses. Mr. Bush wants $63 billion more. So we will have to borrow at very low, short-term interest rates to tide us over until the economy fully recovers.

Senate Majority Leader Tom Daschle and his Democratic allies are trying to make an issue out of this, because nothing else seems to be working for them politically in this election year. They tried to tie the administration to Enron's corruption and collapse, but that failed when it became clear that the White House refused to lift a finger to bail out the energy giant.

They tried to make Mr. Bush's tax cuts an issue by charging that they were to blame for erasing the surpluses. But that failed to gain traction when it became apparent that the sharp decline in the economy, which was slowing down well before Mr. Bush took office, was the chief culprit. Tax revenues were falling before Mr. Bush's tax cuts began to take effect.

Last year, the CBO estimated that the 2002 surplus would be more than $300 billion. The Bush tax cuts implemented this year come to only $70 billion. Lower tax revenues from a weaker economy and higher spending on the war ate up the rest.

Now the Daschle Democrats, desperate to turn around their weak poll numbers, are trying their oldest fear tactic: that Mr. Bush's tax cuts are threatening to "destroy Social Security." That, too, will fail.

The tax cuts (supported by 12 Senate Democrats) are the only pro-growth, pro-jobs, pro-tax revenue initiative we have going for us right now. The solvency of Social Security, until it is fundamentally reformed, depends upon a healthy full employment economy that is producing more paychecks.

And the last time I looked, the Democrats did not have any plan to create a single new job.


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