Monday, July 10, 2006

The economy and federal revenues are growing at such a rapid rate that the deficit will shrink in the short term, President Bush’s chief budget official says, while adding that keeping the deficit in control will depend in the long run on reform of Social Security, Medicare and Medicaid.

Rob Portman, a former congressman and U.S. trade representative whom Mr. Bush tapped two months ago to be director of the Office of Management and Budget (OMB), said the president’s economic policies have led to exceptional economic growth, which has in turn led to bulging federal receipts.

Mr. Portman will deliver the annual mid-session budget review this week, detailing progress on spending and revenues, and he told The Washington Times in a recent interview that tax revenues are expected to show at least double-digit growth in the year to date compared with fiscal year 2005.

The Congressional Budget Office on Friday said federal revenue is running 12.8 percent ahead of the figures at the same time last year. The double-digit increase is the second-highest growth rate in the last 25 years, following only 2005’s increase of 15 percent.

With federal spending up 8.6 percent to date compared with 2005, the deficit should be at least $50 billion less than last year, though Mr. Portman said that depends on keeping the spending side under control.

Mr. Bush has set a goal of halving the deficit by 2009 compared with 2004, which finished with a $412 billion deficit. He and congressional Republicans have made the nation’s recent economic growth one of the twin pillars, along with the war on terror, of their election-year campaign.

Mr. Portman said the revenue is so strong that if it were to continue, it could play a major role in helping ease the budget deficit.

“You can grow out of it short-term; it’s theoretically possible,” Mr. Portman said, though he cautioned that he’s not predicting that will happen, particularly with long-term challenges of Social Security and Medicare still looming.

As the administration’s new OMB director, Mr. Portman, who served 13 years as a congressman from Ohio, said Republicans deserve more credit than they are getting among voters for restraining spending.

“It’s amazing. For the first time since 1997, last year Congress actually reduced the growth of entitlement spending,” he said.

Mr. Portman also said the deficit as a percentage of total economic output, or the gross domestic product, is falling, both because of spending restraint and economic growth, and said Republicans are not getting enough credit for controlling spending.

“If you take out defense, if you take out homeland security, which increased just above inflation, last year you actually had a slight cut and a little bit of progress on entitlements,” he said. “We’re actually making some progress on spending.”

He blamed high-profile spending projects such as the “bridge to nowhere” for making the public so pessimistic about spending, and said that’s one reason the president is pushing so hard for a legislative line-item veto.

“It encourages people to focus early on in the process on whether this particular project or tax relief or spending is appropriate,” Mr. Portman said.

The House passed a version of the line-item veto last month, and the Senate may debate it later this month.

Unlike the 1996 version, which the Supreme Court ruled unconstitutional, this version would not be an actual veto. Instead, after signing a spending or tax bill, the president would send another bill back to Congress that calls for specific items to be cut, and Congress would have a set period of time to vote on the bill.

As a former congressman, Mr. Portman knows the key legislators and said he has had some success convincing them the administration would use the line-item veto carefully, and not as a club to bash Congress.

He also said some of the chairmen on the spending subcommittees realize the line-item veto would help steel them against some spending requests.

“Instead of the chairman saying, ‘I don’t like your idea,’ he can say, ‘Look, if you put it in my bill it’s going to get held up to public scrutiny and The Washington Times is going to be writing about it. Do you want it on the front page of The Washington Times?’” Mr. Portman said. “It’s a tool that some of them, I think, understand they can use to better legislate.”

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