Financial Times Editorial - Budget balancing acts
Financial Times Editorial - Budget balancing acts
Copyright The Financial Times Limited 2007
Published: January 5 2007 02:00 | Last updated: January 5 2007 02:00
The 110th US Congress, which met for the first time yesterday under Democratic control, wants a balanced budget by 2012. So does Republican President George W. Bush. That is good news. But before we offer congratulations, two things need to happen. First, Mr Bush needs to outline credible tax and spending plans and, second, the Democrats have to agree to them.
Republican control of both the White House and Congress did not deliver -fiscal responsibility. Taxes were cut, spending swelled, and the budget deficit peaked at $413bn. Divided control of the executive and legislature can only be an improvement, particularly as Mr Bush has belatedly woken up to the need to control spending.
Mr Bush's problem is his determination to keep cuts in income and estate taxes, plus the priority he gives to defence spending. That leaves only two routes to a balanced budget: spend less on entitlements such as Medicare - politically risky - or squeeze discretionary spending on things such as agriculture, transport and scientific research.
But cuts to non-defence discretionary spending alone will not balance the budget. Such expenditure is less than 20 per cent of the total, so cutbacks would have to be vicious to make any difference. Even if that were desirable, and even if the Democrats agreed, a future Congress and president would be unlikely to stick to the plan.
Mr Bush's budgetary plan must therefore set out initial steps to contain growth in the cost of entitlements as well as specific and plausible cuts in discretionary spending, all timed to take effect now, while Mr Bush is in office, rather than pencilled in for his successor to worry about in 2008. In addition, Mr Bush must be willing to compromise on his tax cuts.
With majority control of the House for the first time in a decade, the Democrats want to appear fiscally responsible and are determined to avoid the dread "tax-and-spend" label. Bipartisan consensus on making "earmarking" - via which a congressman can commandeer cash for projects in his constituency - more transparent bodes well. A deal that repeals tax cuts for the very rich but keeps them for everybody else should appeal to both sides.
All of this is tenuous: it is too soon to tell whether such a pact is possible. But it is important because there are bigger fiscal problems on the horizon.
The alternative minimum tax, a -parallel income tax aimed at the very rich, needs to be reformed. Its thresholds are not linked to inflation, so every year more Americans fall into its bureaucratic clutches.
Most of all, there is the challenge of an ageing population and its effect on the fiscal position in years to come. That will require either profound reform to spending or large tax increases. Debate on this is needed sooner rather than later, but sensible, balanced budgets are surely the first condition for wider change.
Copyright The Financial Times Limited 2007
Published: January 5 2007 02:00 | Last updated: January 5 2007 02:00
The 110th US Congress, which met for the first time yesterday under Democratic control, wants a balanced budget by 2012. So does Republican President George W. Bush. That is good news. But before we offer congratulations, two things need to happen. First, Mr Bush needs to outline credible tax and spending plans and, second, the Democrats have to agree to them.
Republican control of both the White House and Congress did not deliver -fiscal responsibility. Taxes were cut, spending swelled, and the budget deficit peaked at $413bn. Divided control of the executive and legislature can only be an improvement, particularly as Mr Bush has belatedly woken up to the need to control spending.
Mr Bush's problem is his determination to keep cuts in income and estate taxes, plus the priority he gives to defence spending. That leaves only two routes to a balanced budget: spend less on entitlements such as Medicare - politically risky - or squeeze discretionary spending on things such as agriculture, transport and scientific research.
But cuts to non-defence discretionary spending alone will not balance the budget. Such expenditure is less than 20 per cent of the total, so cutbacks would have to be vicious to make any difference. Even if that were desirable, and even if the Democrats agreed, a future Congress and president would be unlikely to stick to the plan.
Mr Bush's budgetary plan must therefore set out initial steps to contain growth in the cost of entitlements as well as specific and plausible cuts in discretionary spending, all timed to take effect now, while Mr Bush is in office, rather than pencilled in for his successor to worry about in 2008. In addition, Mr Bush must be willing to compromise on his tax cuts.
With majority control of the House for the first time in a decade, the Democrats want to appear fiscally responsible and are determined to avoid the dread "tax-and-spend" label. Bipartisan consensus on making "earmarking" - via which a congressman can commandeer cash for projects in his constituency - more transparent bodes well. A deal that repeals tax cuts for the very rich but keeps them for everybody else should appeal to both sides.
All of this is tenuous: it is too soon to tell whether such a pact is possible. But it is important because there are bigger fiscal problems on the horizon.
The alternative minimum tax, a -parallel income tax aimed at the very rich, needs to be reformed. Its thresholds are not linked to inflation, so every year more Americans fall into its bureaucratic clutches.
Most of all, there is the challenge of an ageing population and its effect on the fiscal position in years to come. That will require either profound reform to spending or large tax increases. Debate on this is needed sooner rather than later, but sensible, balanced budgets are surely the first condition for wider change.
posted by Carlos T Mock @ 9:23 AM
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