Bush Plans Could Raise U.S. Deficits

September 4, 2004
Bush Plans Could Raise U.S. Deficits
By LOUIS UCHITELLE

Resident Bush promised in his nomination acceptance speech to improve the lives of millions of Americans by expanding a variety of existing programs, but neither he nor his aides explained how they would pay for the proposals, some of which promised to accelerate the budget deficit over the next decade.

"We have cost estimates and those will be put forward in the coming weeks and months,'' said Trent Duffy, the deputy White House press secretary, declining to offer details. Whatever the costs, the proposals would not go to Congress for approval until February or March, when the presidential budget for the 2006 fiscal year is published. That year begins 13 months from now.

Congress has not approved a budget for the fiscal year 2005, which starts in three and a half weeks. Mr. Bush proposed spending increases in that budget, but last spring the Office of Management and Budget instructed federal offices and agencies to cut spending in the requests they submitted for the 2006 budget.

"We can't tell whether the president is now reversing course and actually planning to devote more resources to the areas mentioned in his speech,'' said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, "or whether he will remain with temporary increases now to be followed by substantial cuts in such areas as education and job training.''

In his speech Thursday night, Mr. Bush said he would expand job training programs "to help workers take advantage of the expanding economy to find better and higher-paying jobs.''

That would be a shift in policy: During the Bush years, money for a central part of the program, the retraining of millions of laid-off workers, has remained essentially unchanged at about $4 billion annually.

The most expensive proposals offered tax breaks for three types of savings accounts and various tax credits for health care. These would add roughly $50 billion to $100 billion to the $2.4 trillion in tax cuts now projected over the next decade, Mr. Greenstein estimated. But the trend would continue to be toward sheltering the income of wealthy people and putting more of the tax burden on wage earners.

During the Bush years, the tax rate on wages and on income from investments has declined, but the decline for investment income is roughly 4 percentage points while that for workers is 2 points, according to estimates by the Congressional Budget Office.

"Some of the president's proposals at the Republican convention may not have immediate fiscal effects, but they are radical changes in the system of taxation that we have,'' said Peter Orszag, a senior fellow at the Brookings Institution and a special assistant on economic policy in the Clinton administration.

The Bush administration, in a second term, would provide tax incentives to set up three types of savings accounts. A health savings account would encourage people to pay for their own health care out of these accounts, though the estimated tax breaks would be less than the actual average cost of health care, according to most estimates.

A new retirement savings account would in effect replace traditional I.R.A.'s. And a lifetime savings account would shelter up to $7,500 a year for each individual in a household, or $30,000 for a family of four. The savings and interest could be withdrawn at any time tax-free.

The retirement accounts might raise revenue initially, Mr. Greenstein said, as people cash out I.R.A.'s and switch the funds to the new accounts. New money going into these accounts would not be deductible and tax revenue would also rise as a result. But none of the earnings would be taxable and that would cut into tax revenue in later years. As for lifetime savings accounts, the accumulated tax savings for a wealthy family putting $30,000 a year into these accounts would increasingly shift the tax burden to wage earners, according to critics.

Concerning education, Mr. Bush said he would increase testing and reward teachers when their students do well, a proposal that Senator John Kerry, the Democratic nominee, has also made. In particular, the president proposed spending $250 million more to require more statewide exams in reading and math and $200 million to monitor the progress of incoming high school students.

The increase would be significantly more than what the administration has requested in recent years, though experts deemed it far short of what it would take to conduct more standardized tests nationwide.

"It seemed like the right rhetoric, but not the right solution," said Keith Gayler, associate director for the Center on Education Policy, which generally supports testing. "This seems woefully underfunded and if it is not well funded, it will probably cause more harm than good."



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