Economics

October 31, 2004
ECONOMIC VIEW
Dear President ( _____ ) ...
By EDMUND L. ANDREWS


With the outcome of Tuesday's presidential election too close to call, it seemed a good idea to draft advance letters of congratulation for both President Bush and Senator John Kerry.

DEAR President Bush,
Congratulations on your spectacular victory. You never wavered in your convictions, never cowered before critics and never let details get in the way of being "on message."

But now that the race is over, perhaps you can explain some of the trickier economic issues that you glossed over in your quest to win. Let's start with the federal budget, which crumbled from a surplus of $236 billion in 2000 to a deficit of $413 billion this year. You have promised to cut the deficit in half by the time you leave office, mainly by cutting spending.

Exactly which spending cuts do you have in mind? Federal spending has soared by more than 15 percent since you took office, after adjusting for inflation. Your Republican allies controlled both houses of Congress during most of that period. You never vetoed a single bill. So which part of the spending didn't you like?

Your promise to freeze nonmilitary discretionary programs has already led to de facto cuts in housing benefits and other social programs. But those programs account for less than 20 percent of the federal budget, and freezing them saves only peanuts in the overall scheme of things.

The biggest, fastest-growing areas of spending are off limits: mandatory entitlement programs like Social Security and Medicare; the new Medicare prescription drug benefit, which you pushed through Congress and which your administration says will cost $534 billion over 10 years; military and domestic security budgets, which you would increase; the Iraq war, which shows no sign of abating; and interest payments on the ballooning federal debt.

Adding up the existing commitments and your own tax-cutting goals, the nonpartisan Congressional Budget Office estimated that budget deficits could total more than $4 trillion over the next 10 years.

Congressional analysts assume, as you do, that tax revenue will get a boost from faster economic growth. But they still expect a meteoric rise in federal debt.

So what do you really want to cut? Farm subsidies, which you helped to increase? NASA and the mission to Mars? Education money for No Child Left Behind? Scientific research at the National Institutes of Health and the national weapons laboratories?

Your goal of reforming Social Security raises some big questions. As you have noted, the Social Security trust fund is on a slow course to insolvency as the nation's baby boomers reach retirement age. Part of your solution would be to let people invest some of their payroll taxes in private accounts, earning potentially higher returns - or racking up losses - while assuming more responsibility for their own benefits.

It sounds good, but you never mention that to make this change, the government would have to borrow $2 trillion or more over the next several decades. That is because Social Security would lose a big part of its current revenue but would still need to pay benefits to current retirees. How would you cover that cost?

Sincerely,
A Dedicated Voter

DEAR Senator Kerry,
Words cannot convey the thrill of your dazzling victory. They said you lacked charisma, called you a flip-flopper and made fun of your swim trunks. Ha!

They only wish they could windsurf as well as you do.

But now that battle is over, perhaps you can stop fudging on your plans for health care, job creation and deficit reduction.

Let's start with your plan to extend health insurance to more than 20 million people who do not have it today. You say it will cost $653 billion over 10 years. The Lewin Group, a nonpartisan health care consulting firm, estimates that it could cost $1.2 trillion.

Even if your estimate is closer to the truth, what happens if Congress refuses to roll back Mr. Bush's tax cuts for families with incomes above $200,000 a year? How would you pay for your health plan?

Jared Bernstein, at the Economic Policy Institute, a liberal center in Washington, notes that you have castigated Mr. Bush for fiscal irresponsibility and pledged to cut the deficit in half by the end of your first term.

"Let's say you can't roll back the tax cuts," Mr. Bernstein said. "How are you going to implement a health care plan aimed at stimulating job growth while trying to cut the deficit?"

That's not the only problem with your health care program. Fiscal conservatives are aghast over the new Medicare benefit for prescription drugs, which is now expected to cost $534 billion over 10 years. Yet you and other Democrats want to make the program more generous, eliminating many of the gaps in coverage.

Democratic and Republican analysts, meanwhile, agree that Medicare and Social Security face trillions of dollars in unfunded commitments as millions of aging boomers start to claim benefits. The trustees for Medicare predict that if benefits remain unchanged, the main hospitalization fund will be out of money in just 15 years.

Yet all you have said is that you will protect Medicare and Social Security from any cutbacks. Surely you can give us a bit more detail than that.

Sincerely,
A Dedicated Voter