The crux of U.S. budget battle: How to pay?

The federal budget is on an unsustainable path, according to a new report by the Congressional Budget Office.

By Gail Russell Chaddock | Staff writer of The Christian Science Monitor

from the December 17, 2007 edition

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Washington - As Congress moves toward a massive end-of-year spending bill this week, both parties claim to be fighting on the side of fiscal responsibility.

Republicans are lining up with the White House in enforcing spending caps – a battle they are poised to win. Despite low public approval ratings, President Bush has enough votes in the Senate to block bills that he opposes, as long as most Republicans stand with him.

Meanwhile, Democrats are losing ground in their year-long bid to require that Congress pay for new tax cuts. A key test comes this week as the House and Senate work out their differences on a $50 billion "fix" to the Alternative Minimum Tax (AMT), which is now set to hit 22 million new taxpayers in the 2007 tax year. The House is requiring offsets; the Senate is not.

At issue is whether the atmosphere on Capitol Hill is now so partisan that Congress can't make the trade-offs needed to handle long-term fiscal challenges. By dealing with big-ticket items such as the AMT fix and the costs of the war, now about $10 billion a month, outside the normal budgeting process, Congress is shirking the hard choices needed to get America's fiscal house back in order, say budget watchdogs.

"Back when President Reagan was borrowing, government debt was $1 trillion. Now, we're borrowing on a credit card that's maxed out," says Stanley Collender, of Qorvis Communications, a business consulting firm.

The nation's fiscal situation is not unlike the plight of homeowners who signed on to adjustable rate mortgages and now risk losing their homes, Mr. Collender adds. "What we're going to find after George Bush leaves office is that the national debt will be financed with much higher interest rates."

In a new report released last week, the Congressional Budget Office (CBO) said that the federal budget is on an "unsustainable path." The reason: The government is spending more and more for healthcare programs and for interest payments on the federal debt, now topping $9 trillion.

In the past, the US funded its deficits by drawing on Social Security trust fund surpluses, but increasingly Washington is financing its debt by borrowing from abroad. "Over time, foreign investors would claim larger and larger shares of the nation's output, and fewer resources would be available for domestic consumption," CBO director Peter Orszag told the House Committee on the Budget Dec. 13.

The CBO estimates that the wars in Iraq and Afghanistan could cost $2.4 trillion over the next decade. Nearly $700 billion of that cost will be interest on the debt to finance the wars.

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