- The Washington Times - Wednesday, January 31, 2007

House Democrats begin their annual retreat at the Kingsmill Resort in Williamsburg, Va., today, and while the nearby James River is normally tranquil, the caucus meeting itself is confronted by swirling crosscurrents and challenging political eddies. No doubt most are savoring the fruits of regained power. Indeed, one lawmaker joked that when someone refers to him as “Mr. Chairman,” his reaction is to look around and say, “Who, me?”

Yet the strategic and tactical decisions facing the Democrats are deadly serious. Responding to the White House on policy regarding Iraq will dominate discussions this weekend. But on the domestic front, passing a congressional budget resolution — a five-year fiscal policy blueprint on taxes and spending — is the next big challenge. Republicans failed to agree on a budget plan last year, an outcome that led to the perception of governing incompetence. It’s hard to imagine Democrats will follow suit because failure carries a heavy political price — but so could success.

Democrats affixed “fiscal responsibility” on the front page of their political playbook, making it a major theme during last year’s campaign. If nothing else, it makes for potent political rhetoric. Many of the party’s so-called Blue Dogs exhibit a large poster board chart outside their congressional offices showing the current level of the federal debt and your share of it. The Democratic Web site of the House Budget Committee displays the same Cassandra calculus (you owe just under $29,000 as of this week).

So will white smoke billow out of Williamsburg signaling a policy breakthrough? Will Democrats conclude it’s time to stand and deliver, clean up the fiscal mess they say Republicans created? Maybe. But they will learn quickly it’s easier to rail against Republicans’ plans than pass one of their own. Democrats may eventually agree on a five-year balanced budget plan, but they will only achieve that goal by substantially higher taxes — a path congressional Republicans will oppose. Unfortunately this means another year of partisan sniping about fiscal policy and a missed opportunity to address long-term budgetary challenges.

Last week, the Congressional Budget Office (CBO) released its annual budget outlook for the next 10 years. The CBO reports better-than-expected short-term news, along with some dire warnings about the future. The CBO analysis will frame and guide Democratic decision-making.

Notwithstanding charges that Republicans and President Bush were co-conspirators in triggering a fiscal-policy meltdown, the short-term projections are somewhat positive. Not only are short-term deficits projected to continue their decline compared to 2006, the CBO writes that if current laws and policies remained the same — and spending grew at the rate of inflation — the budget would be balanced in four years (2011) and then would show surpluses of about one percent of GDP each year through 2017 (the end of the current 10-year projection period).

One might conclude this projection makes the Democrats’ trip toward fiscal responsibility a float down the lazy river. But there are some dangerous crosscurrents just around the bend. For example, the CBO projection assumes that many of the tax cuts enacted by Congress and Mr. Bush in 2001 (individual rate reductions), 2003 (dividend and capital gains rate reductions) and the estate tax reduction all expire at the end of 2010 and snap back to higher levels. Using CBO numbers, extending just these tax cuts for the last two years (2011 and 2012) of the five-year budget will “cost” nearly $400 billion. But doing nothing is the same as voting for a big tax increase, a move that could cause some Democrats in swing districts to pay a high political price.

Using this $400 billion tax increase (assuming other spending is kept at the rate of inflation) Democrats could indeed balance the budget. Yet few expect it will be that easy. “There is a lot of pent-up demand for spending,” a senior Republican aide told me. “It will be hard for them not to spend more; that probably means even higher taxes.”

The political math suggests that Democrats will put together a balanced budget plan that spends and taxes more than the current CBO projections. Few, if any, Republicans will swallow such an approach, meaning another partisan budget fight and little progress addressing long-term fiscal challenges. Stabilizing entitlement spending and tax policy for the long term will require some hard bipartisan rowing. Democrats are at the fork in the river, but are drifting toward a familiar and dangerous partisan bend.

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