- The Washington Times - Friday, May 10, 2002

The budget outlook is rapidly deteriorating because of declining revenue and escalating congressional pork-barrel spending, with some on Wall Street predicting a return to triple-digit deficits "as far as the eye can see."
In comments to reporters yesterday, President Bush acknowledged the trend that has prompted the White House to issue veto threats over excessive spending measures, including the emergency spending bill and provisions of the House defense bill.
"The economy is beginning to come back, but certainly not as strong as I would like. And until the economy comes back as strong as it can, our revenues aren't going to be as good as they should be," Mr. Bush said.
White House budget Director Mitchell E. Daniels Jr. said the unprecedented decline into triple-digit deficits within a year of posting triple-digit surpluses is not likely to end in 2004, as he previously predicted, because the government's main sources of revenue are not bouncing back like the rest of the economy.
"We get so much of our income from high-income people," Mr. Daniels said in an interview with Bloomberg News. "These same people derive a lot of their income from capital gains, bonuses or stock options. Simply getting the economy out of recession quickly may not be enough to bring back the government's revenue."
The White House has been forced to revise its budget forecast because of the dramatic falloff of tax receipts in April, a critical month when upper-income taxpayers filled the government's coffers in past years with last-minute tax payments.
This year, rather than owing money, many found they were due large tax refunds because their incomes shrank and they sustained sizable losses in the stock market. The declining revenue trend started last year but accelerated considerably this spring.
Many private analysts say the plunge in receipts is not merely a temporary result of the recession. Few expect the stock market to return to the double-digit growth that helped produce the huge revenue windfalls that created the surpluses in the late 1990s.
The recession and Enron scandal are keeping a lid on executive compensation gains that are taxed at high rates. And corporate profits, another important source of revenue, largely vanished in the last year.
Mr. Daniels warned that the president won't bow to election-year pressures to accommodate lawmakers' efforts to enlarge the president's $27.1 billion emergency spending request. Republicans and Democrats alike have larded such spending bills in bids to extend their control of Congress this year.
He said administration polling shows a veto confrontation with Congress would be a plus for the president's image.
"We've gotten advice persistently over recent months that it'd be a very positive thing for the president to veto a bill that spends too much money," he said.
The administration also issued a veto threat yesterday over any defense bill containing restrictions on the president's ability to cancel the howitzer weapon program.
Private budget analysts say much of the problem is beyond the president's direct control, however. They say the impetus to spend has become irresistible in Congress, and for the first time in more than a decade, lawmakers have put in place no legal restraints on spending.
The defense bill contains a three-year increase of 21 percent or $67 billion, the largest since the Reagan defense buildup 20 years ago. And the farm-subsidy bill, which Mr. Bush has reluctantly agreed to sign, increases spending by 64 percent over current law.
"There is no discipline in the current budget process," said Douglas Lee, president of Economics from Washington Inc. "For the first time in 17 years, Congress is entering this year's budget cycle with no budget resolution and no other type of control on discretionary spending."
The House has passed a budget, but the Senate has not. Meanwhile, neither chamber has plans to extend rules that at least mildly constrained spending this year by capping discretionary funding and imposing "pay as you go" rules on mandatory spending increases.
The result has been a spending free-for-all, analysts say, as exemplified by the farm bill, where lawmakers "compromised" by giving everybody what they asked for.
"As we have seen in the past, large tax cuts combined with an absence of spending control results in deficits 'as far as the eye can see,'" said Mr. Lee.
Bernard M. Markstein, president of Markstein Advisers, said the political calculus is very unfavorable for the budget with the two parties vying strenuously for control of Congress.
"If you don't deliver enough to your voters, you may lose office," he said. "There tends to be a much lower penalty for giving something away to the other side's constituency as long as you provide for yours. As a result of this political budget math, fiscal initiatives tend to grow in size as they wend their way through the legislative process."
Some economists hold out hope that the recovering economy will come to the rescue, as it has before, enabling Congress to keep overspending.


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