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Are Americans ready for fiscal sanity?

By David R. Francis / December 18, 2006



Talking like a politician facing a large budget deficit, a member of British TV's Monty Python comedy troupe promised his imaginary constituents he would "tax all foreigners living abroad."

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Sometimes the American political scene manifests a similar unreality: Cut taxes. Never raise them – that might bug voters. Spend more. But don't trim programs – it could cost votes.

Apparently, most Americans – or at least the randomly selected members of six focus groups across the nation – aren't so economically naive as to buy such political snake oil. They see the need for more action to cure the fiscal problems arising from an aging society and the Iraq war.

Calls for fiscal accountability are rising even as the climate for change grows.

The focus-group members – to the delight of the policy wonks who initiated this research project – want government to "let go of simplistic solutions that are unlikely to really solve anything" and accept "hard choices and compromises" necessary to meet fiscal challenges.

This shows that "average people" can understand fiscal issues, talk about them "intelligently," and "find common ground" for solutions, says Alice Rivlin, a veteran budget expert at Brookings Institution, a centrist think tank in Washington.

The project is bipartisan, like the Iraq Study Group, though not sponsored by Congress. The project is dubbed, "Facing Up to the Nation's Finances."

A host of Washington policy groups are trying to deal with the country's fiscal challenges. Besides Brookings, other partners in this project include The Concord Coalition, The Heritage Foundation, Public Agenda, and Viewpoint Learning. They see the federal government spending nearly half a trillion dollars more than its revenues, borrowing money to cover the gap, and passing on the debt to future taxpayers. They expect shortfalls in Medicare and Social Security revenues in the years ahead to add to the current financial predicament. And they see "straight talk" on the problem as "a rare commodity."

But the fiscal climate may be changing for the better: "People are grasping this issue and demanding more responsibility," says Stephen Ellis, vice president of Taxpayers for Common Sense. "There is a heightened awareness of problems of waste and parochial use of budget money."

Oddly, the transfer of congressional power to Democrats in the recent election may mean a tighter federal budget.

Last week, the incoming Democratic chairs of the House and Senate appropriations committees talked of a plan to kill thousands of hometown projects, called "earmarks," that lawmakers add to spending bills. Critics call these projects wasteful "pork." Sponsors see these projects (roads, bridges, hospital buildings, etc.) as useful to local needs – and to their own future political prospects.

Mr. Ellis suspects the costly Alaska "bridge to nowhere" dramatically increased public awareness of "waste" in the 2007 fiscal budget.

The Congressional Research Service found 13,012 earmarks, costing $67 billion, in the proposed budget. But the Republican-led Congress did not manage to pass the entire budget before adjourning earlier this month, leaving the new Congress to clean up the mess.

About 2,600 earmarks, attached to the Defense appropriation bill, did pass, says Ellis. If the Democratic leadership plan prevails, thousands of earmarks in the nine unfinished appropriation bills could perish – unless Congress passes a proposed reform involving more "transparency" as to sponsorship and detail.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, says budget restraint will require new political leadership, a public clamor for action, or a financial crisis.

"I wish I could say there was a public outcry," she says. Even if new leadership tackles the budget deficit, it would take three to five years to achieve balance – and "a higher level of sacrifice for the long run."

One big complication is the Iraq war. President Bush is expected to ask for as much as $170 billion more in the new year for the conflicts in Iraq and Afghanistan – on top of the nearly half trillion already spent. "As long as Bush is president, the steps [toward balancing the budget] are going to be somewhat babyish," says Robert McIntyre, director of the Center for Tax Justice, a left-of-center Washington research body. It will be difficult for Democrats to get past a presidential veto should they want to raise income taxes on the rich, for instance.

Nonetheless, there are revenue possibilities. One would be to crack down on taxpayers using overseas tax havens. Referring to the Python joke, Mr. McIntyre calls for taxing "Americans pretending to be foreigners." That might raise $70 billion, and would be politically hard for Bush to veto.

The Internal Revenue Service estimates the gap between what the IRS collects each year and what people owe under law as about $290 billion.

Then there's the cap on earnings subject to Social Security tax – next year, $97,500 per worker. Eliminating that cap would raise revenues $124 billion, but doing so would be politically scary for any politician – Democrat or Republican.

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