Defense and US budget deficits

SIMPLY put, the fast-growing American economy needs a budget-reduction package. And it needs one fast.

While the United States economy moves along at a steady clip, warning signs suggest trouble down the road.

Interest rates ratchet upward - putting upward pressure on the dollar.

The high dollar attracts investment monies from abroad - undercutting US exports as foreign-made goods become relatively inexpensive vis-a-vis US goods.

The US economy's robustness can be seen in rises in employment, housing starts, and auto sales.

The biggest concern: Government and private borrowers are apt to collide in financial markets later this year as the government seeks large amounts of funds to finance massive federal budget deficits.

This could directly threaten the recovery.

For these reasons, Congress and the White House must forthwith wrap up a compromise deficit-reduction package.

Last week's Washington action centered in the US House, where lawmakers approved a resolution to slash deficits by $182 billion over three years. The resolution was nonbinding, but it constitutes a crucial first step toward fashioning a final plan.

This week the House is expected to formally vote to lock in some of the features of that resolution, such as voting on limited tax increases. Even more important, on the Senate side GOP leaders and the White House will begin deliberations on a slightly more modest plan for the same three-year period - a deficit-reduction package of about $150 billion.

In some regards, such as the various tax-increase proposals, the two rival plans are not all that far apart. And the totals - $182 billion and $150 billion , respectively - are close enough in dollar terms for compromise.

The big difference involves defense.

On defense, the House package makes far better sense than the Senate leadership package.

Under the House package, defense costs would rise 3.5 percent a year over the three years, after allowing for inflation.

Under the Senate leadership package, defense would climb about 7 percent a year, adjusted for inflation.

The issue is not whether to so curb legitimate defense programs as to endanger national security.

Rather, it is how to prorate defense costs over several years. Why not slow the rate of increase in defense costs? That is essentially what the House plan would do.

National security is essential.

But having a healthy, prosperous economy must be seen as an integral element of a nation's true defense.

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