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A shift from surplus to deficit spending
© St. Petersburg Times, WASHINGTON -- One of the most surprising results of the terrorist attack on the United States has been its power to transform the nation's political leaders from savers to big spenders. Just three weeks ago, Senate Budget Committee Chairman Kent Conrad, D-N.D., was arguing that Congress' first obligation was to pay down the national debt and preserve the surplus held in the Social Security and Medicare trust funds. Now, however, Conrad is actively advocating a wide range of new tax cuts and other spending bills to boost the economy and defend the nation -- even if it leads to deficit spending. "When the country has been attacked and we are experiencing a sharp economic downturn, you must do whatever is required to defend the nation, to rebuild and to provide fiscal stimulus," Conrad said in an interview. "And we have to do that even if it means doing something, like deficit spending, that we don't really want to do." Even though many things have changed since Sept. 11, it would be hard to exaggerate the significance of Conrad's remarkable change of heart. For the past year, he has been the most vocal advocate for fiscal discipline in Congress. In fact, the word "deficit" has become virtually extinct in Washington in recent years as the politicians have grown accustomed to generous federal surpluses. Nor is Conrad the only lawmaker who is suddenly expressing a willingness to consider deficit spending. He said his views were shared by other congressional leaders -- Republicans and Democrats -- who attended a series of closed-door meetings last week with administration officials, Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin. "There was a strong consensus in the room," Conrad said. "There is a growing bipartisan consensus that, if we decide we need an additional economic stimulus, we should find a way to increase government spending in a way that will get it into the economy quickly, and a way that will not jeopardize our long-term fiscal discipline." Conrad, a reserved, bespectacled man whose mild demeanor reinforces his role as congressional bean-counter, emphasized that while he would not be opposed to incurring a deficit in the next year or two, he is certainly not advocating deficit spending for its own sake. "I'm not saying that the thing to do is run up a deficit," he noted. The federal budget has not been in deficit since fiscal 1997. But after four years of surpluses, members of Congress are beginning to brace themselves for a possible shortfall again in 2002. When the 2001 fiscal year ends next week, according to the Office of Management and Budget, the surplus could be down to $120-billion. Earlier in the year, it was estimated that this year's surplus was going to be closer to $280-billion. While details of the new, wartime spending measures have not been worked out, a package is expected that would consist of these elements: new cuts in individual and corporate taxes, loan guarantees for industries, in addition to the airlines that have suffered because of the terrorist attacks, and spending to rebuild in New York and Washington and to beef up homeland security. Like most members of Congress, President Bush has not decided what combination of options he will support. R. Glenn Hubbard, chairman of the President's Council of Economic Advisers, said Bush, like Conrad, wants to take steps to "raise household and business confidence" in the short term, without creating any long-term negative impact on the federal budget. The likelihood of new government spending has caused something of a feeding frenzy on K Street, where lobbyists for the nation's businesses maintain their offices. The Senate Finance and House Ways and Means committees report they have been swamped with requests from business lobbyists arguing that their industries' contributions to the war effort would be enhanced by federal dollars. In his meetings with members of Congress, Greenspan warned them to "first, do no harm" -- meaning they should do nothing until government officials can determine whether the economy is going to rebound without a stimulus. Before the terrorist attacks, the Fed chairman said, it appeared that the recession had already bottomed out. If that turns out to be the case, he said, there would be no need for an economic stimulus package. Conrad said Congress will take Greenspan's advice and wait at least 10 days before it begins to put together such a plan. Whatever new expenditures Congress agrees upon, they would be in addition to the $50-billion that it already has approved during the last three weeks to rebuild New York, to institute a variety of new counter-terrorism measures and to prevent the airline industry from going bankrupt. Republicans have been pressing for additional tax cuts for businesses, and White House officials have offered their support. But Greenspan and Rubin nixed the GOP's initial plan to trim taxes on capital gains. It is feared that a cut in capital gains would only encourage stockholders to sell, causing a further dip in the stock market. Hubbard indicated the president would look favorably on a speed-up in anticipated tax rate cuts for all businesses, but he would oppose special breaks for any specific industry. Conrad, who speaks for most Democrats on these matters, said he would favor granting businesses more generous tax treatment of their expenses, not permanent cuts in corporate tax rates. This idea is consistent with his view that permanent tax cuts would undermine long-term confidence in the economy, and thus drive up interest rates. For individuals, Conrad is talking about a second tax rebate, this one for poor people whose low incomes exempt them from income taxes but who still pay deductions for Social Security and Medicare. Other measures being proposed on Capitol Hill to help individuals include an increase in the minimum wage and an expansion of unemployment benefits. It is anyone's guess, at this point, what Congress might approve in new spending programs. The insurance and tourism industries are seeking bailouts similar to that granted the airline industry. Airport security and defense acquisition programs are sure to get a big infusion of cash. Many members of Congress came away from last week's meetings thinking there would likely be a speed-up in funding for public works projects, particularly those already underway. Sen. Bob Graham, D-Fla., who as a member of the Senate Finance Committee attended the meeting with Greenspan and Rubin, told his staff afterward to prepare a list of public works projects in Florida that could begin immediately if they had more money. Needless to say, these plans have silenced those members of Congress who were advocating putting Social Security payroll taxes into a so-called "lockbox," where they could not be borrowed by Congress for new spending programs. Conrad acknowledged that reforming Social Security will be more difficult as a result. By the time Congress returns to Washington this week, the list of new spending proposals is certain to be even longer. Conrad, in the interview, asked jokingly if the St. Petersburg Times wanted a federal bailout. "If you don't," he added, "you could be the only business that does not want to get something out of this."
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