Hurricane Katrina has been a disaster for many families, the Gulf region and the nation, but it need not be a disaster for the federal budget, or the U.S. economy.
Recovery from Katrina will be least painful if the federal government offsets the cost of its relief spending by redirecting funds from lower priority programs, and continues pro-growth economic policies. Operation Offset, launched this past Wednesday by the Republican Study Committee (RSC), is a bold step in this direction.
Because federal tax dollars are not infinite, money spent recovering from Katrina has to compete with all the other programs receiving government funds. This is why Congress, to avoid further damaging the economy while funding the necessary relief, must prioritize its spending just like the generous American people donating to Katrina relief are: They need to choose giving aid over spending on less important luxuries. Like a family giving $50 to the Red Cross instead of going out to dinner, members of Congress should give to Katrina-ravaged areas the money budgeted for pet projects. Fortunately, Hurricane Rita was far less destructive than expected, so Katrina spending doesn’t have to be doubled.
This redirection of funds is proposed by fiscally responsible members of Congress leading Operation Offset. This proposal puts helping victims over funding pork. It suggests lawmakers give to damaged areas the $25 billion set to fund the 6,371 pork projects in the transportation bill. Citizens on both sides of the political aisle in Bozeman, Mont., have already thought of this, and are offering to relief efforts the $4 million they had coming for a downtown parking garage.
While members of the RSC suggest giving back all earmarks, if members offered just 55 percent of their pork, as has House Minority Leader Nancy Pelosi, a California Democrat, nearly $14 billion would be available for rebuilding.
These dollars, by federal budget rules, would need to go to road building because transportation money comes from funds specifically for such work. But that should be a large part of the reconstruction costs. Operation Offset offers other savings for funding the other proposed initiatives. Vouchers for relief for housing and education needs could be funded, for example, by the more than $30 billion that would be saved by delaying for just one year the Medicare prescription drug benefit. That alone would offer twice as much as the $15 billion needed to give each of the 600,000 displaced households $10,000 in rent vouchers, $10,000 in school vouchers and $5,000 in training and labor vouchers.
The list put out by Operation Offset offers a grand total of $500 billion in savings — more than enough from which to pick and choose. Those opposed to reducing spending for any of the specific RSC-identified lower-priority items could consider offsetting costs with a nearly painless across-the-board redirection of 1 percent of the $2.5 trillion federal budget.
This way, all departments help the same amount, and there would be $25 billion more — $41,667 per displaced household — for Katrina relief this year, without increasing the deficit.
Another proposal to cover Katrina costs is a tax increase. But those preferring this option to spending more responsibly should be careful not to kill the goose that lays the golden egg that pays for recovery: a strong economy. The more quickly the economy grows, the more quickly more funds will come into state and federal coffers to cover the cost of relief.
As the Kennedy, Reagan, Clinton and Bush tax cuts of the past 45 years have shown, tax cuts boost economic activity and lead to more tax revenue. By easing the tax burden, these tax cuts helped the economy grow to the point where the federal government this year will collect $1.2 trillion more than it did in 1960 — when the top income tax rate was 91 percent.
And more growth means more jobs. The Heritage Foundation’s macroeconomic modeling shows making the Bush tax cuts permanent would create 430,000 more jobs nationally in 2006 alone, including 5,300 additional jobs annually in Mississippi and 9,100 in Louisiana — one-third of them in New Orleans.
Although, as I know from experience, it is difficult to cut or redirect spending, it is the right thing to do and the best way to ease the economic damage Katrina has done to the country.
Operation Offset is one worth taking up. It both helps those most in need by moving them up the priority list, and accepts that this means some other projects have to wait for funding.
It is what millions of charitable Americans have decided to do out of the goodness of their hearts, and what members of Congress should do to demonstrate they can rise to the call to put our national interest first.
Dick Armey, Texas Republican, is the former U.S. House majority leader and is now the Co-Chairman of FreedomWorks, a nationwide grass-roots political organization.