Federal generosity comes with price tag

Taxpayers will eventually have to cover the cost of the billions of dollars in aid going to help storm victims, but how?

Published September 22, 2005

WASHINGTON - The early costs for Hurricane Katrina are adding up: $750-million for removing debris, $1-million for mental health counseling, more than $3.6-billion for trailers and mobile homes.

Soon, the bills for that generosity will be coming due. Ultimately, the extraordinary federal effort is expected to cost more than $200-billion.

How should we pay?

Should we add the cost to the federal deficit? Delay the Medicare drug benefit for a year? Eliminate political pork? Cancel tax cuts for the wealthiest Americans? Have members of Congress give back their $3,100 raises?

A review of the options shows no easy choices. President Bush has ruled out tax increases. The big-ticket budget cuts, such as delaying the drug benefit for senior citizens, face tremendous opposition. Other solutions, such as eliminating pork, are easier but don't raise much money.

The disagreement about the options has sparked a fundamental debate about the role of government.

"It's something we have to decide as a country," said Brian Riedl, a federal budget analyst with the Heritage Foundation, a conservative think tank. "What are our priorities?"

In his speech from New Orleans last week, President Bush vowed the federal government would "help the citizens of the Gulf Coast to overcome this disaster, put their lives back together and rebuild their communities."

Bush said federal money "will cover the great majority" of costs to repair roads, bridges, schools and water systems.

On Wednesday, the House passed $6-billion in tax cuts for storm victims. Hurricane Rita, which is expected to hit the Texas coast by Saturday, will add billions more to the federal costs.

Republicans say the best way to pay for Katrina is to cut federal programs.

The White House agrees and has said Congress should reconsider many modest budget cuts Bush proposed this year, such as reductions in agriculture programs. Some were rejected by Congress.

On Wednesday, the Republican Study Committee, a group of House conservatives, proposed dozens of programs that could be reduced or eliminated. Members proposed cuts in the school lunch program ($125-million next year), canceling the new moon/Mars initiative ($44-billion over 10 years), eliminating Medicare funding for penile implants ($4-million over five years) and charging federal employees for parking ($720-million over five years).

Most of the proposals have been around for years. But Republicans say Katrina gives them an opportunity to try again.

They are likely to face resistance on virtually every proposal. One of the most controversial is to delay or cancel the drug benefit for senior citizens, scheduled to start in January.

"We can't afford that new benefit," said Rep. Jeff Flake, R-Ariz., a longtime opponent of the program. Canceling it would save an estimated $32-billion the first year and larger amounts in future years.

The idea faces opposition from both parties.

"A lot of conservatives are acting like these are optional programs," said John Irons, director of tax and budget policy for the Center for American Progress, a liberal think tank. "The reason why this was passed is that people do need prescription drugs."

Taxpayers for Common Sense, a government watchdog group, issued a report this week recommending $144-billion in cuts. A large share comes from the defense budget, including halting production of the F/A-22 fighter plane and canceling the V-22 Osprey, another combat plane.

Another option is for Congress to reduce or eliminate political pork, the pet projects members have tucked in the highway program and annual spending bills.

"It's about time lawmakers sacrifice pork projects that essentially serve as taxpayer-financed re-election advertisements," Riedl said.

Pork may be relatively easy to cut - voters may accept a one-time sacrifice - but it represents only 3 to 4 percent of the money controlled by Congress.

"You can find all these little things here and there," said Irons. "But they are not going to add up to $200-billion."

Another way to pay Katrina's costs is to repeal some or all of the tax cuts Congress approved in 2001 and 2003. They will cost about $225-billion this year, so repealing them for a single year might cover the entire cost of the hurricane.

Irons said Congress could recoup $55-billion by repealing the tax cuts that help the wealthiest 1 percent of taxpayers. He said Congress should focus on "the people who have gotten the biggest breaks in the last four years."

Congress also could choose not to extend some of the tax cuts due to expire in the next few years.

David Walker, the head of the Government Accountability Office, the investigative agency of Congress, said lawmakers need to consider tax changes to pay for the hurricane - and ultimately balance the federal budget.

"There's no way you're going to cut programs enough to balance the federal budget," he said.

Taxpayers for Common Sense says the government could save $20-billion by ending the mortgage deduction for second homes, which include many beachfront houses at risk from hurricanes.

"We need to get out of the business of subsidizing people who are in harm's way," said Keith Ashdown, vice president of policy for the group.

But the White House and most Republicans don't want to use tax increases to pay for Katrina. They say failing to make the tax cuts permanent would equate to a tax increase.

"The last thing in the world we need to do is raise taxes and retard economic growth," said Al Hubbard, a Bush economic adviser.

But even some conservatives say it may be difficult to extend the tax cuts when so many hurricane victims need federal assistance.

"Realistically, it's going to be very, very hard to extend existing tax cuts under current circumstances" said Bruce Bartlett, a senior fellow at the National Center for Policy Analysis, a conservative think tank.

Another option is to simply borrow the money.

The hurricane costs would be added to the federal deficit, which before the storm was projected to be $331-billion this year.

The White House says it's inevitable that some of the storm's costs will add to the deficit.

"I think everybody recognizes," said White House spokesman Scott McClellan, "that the costs we're talking about related to Katrina are going to have a short-term impact on the deficit."

But McClellan said they are "one-time costs" and Bush still hopes to cut the deficit in half by 2009.

Critics say the government is simply borrowing money like a shopper with a credit card.

"What that means is those costs are being passed down to our children - with interest," said Riedl.

Walker says the deficit is already too big and will soon face tremendous strain from the surge of retiring baby boomers.

"We need to get serious soon," he said, "to get our house in order."

Washington bureau chief Bill Adair can be reached at 202 463-0575 or adair@sptimes.com



$200-BILLION: The estimated cost to the federal government for rebuilding and relief, including $63-billion already appropriated.*


How do you pay a $200-billion bill? Here are some of the options and how much it would raise:

$225-BILLION: Eliminate the Bush tax cuts passed in 2001 and 2003 for one year.

$55-BILLION: Eliminate the tax cuts for the wealthiest 1 percent of taxpayers for one year.

$32-BILLION: Delay by one year the new Medicare drug benefit.

$23-BILLION: Cut 1 percent from all federal programs for one year.

$32-BILLION: Eliminate "earmarks,' the individual projects requested by Congress for one year.

$24-BILLION: Eliminate earmarked highway projects from latest transportation bill.

$9-BILLION: Stop production of the F/A-22 fighter plane (amount saved over five years).

$2-MILLION: Rescind the automatic $3,100 pay raise for members of Congress next year.

* This is an early estimate about the total cost. Others have ranged up to $300-billion, depending on what is included.

Sources: Heritage Foundation, Taxpayers for Common Sense, Center for American Progress, Republican Study Committee