Deficit complicates life in Congress

Capitol Hill struggles to fund changes in Medicare, defense, and energy without burdening future generations.

The prospect of a federal deficit of half-a-trillion next year - and more red ink for years to come - looms over intense struggles on Capitol Hill on issues ranging from Medicare and energy policy to funds to rebuild Iraq.

New spending on proposed programs as well as defense and homeland security could top $1 trillion over the next 10 years, say budget analysts. Yet there is no plan for how to pay for it, short of running deeper deficits - and passing a budget shortfall on to the next generation, critics say. Estimates of that shortfall range from the official $1.4 trillion to over $5 trillion.

"These are historically large deficits. It means a generation is going to have to pay taxes at higher rates, if we are going to support a decent retirement and healthcare system," says Richard Kogan, a fellow at the Center for Budget and Policy Priorities.

At the same time, government revenues are declining. Revenue losses were roughly twice as significant as spending increases in turning the budget from surplus to deficit over the last three years, according to a new CBPC study, released Monday.

After more than 40 years in the minority, Republicans won back the House in 1994 on a pledge to halt deficits and reduce the size of government. But in power, GOP lawmakers are deeply divided over how high a priority to assign that goal.

So far, key fights have been waged within the Republican Party, which has largely excluded Democrats from negotiations between the House and Senate over energy and Medicare bills. Friday, Sen. Pete Domenici (R) of New Mexico, chair of the Senate's energy panel, postponed "indefinitely" a final conference on the energy bill, after House Republicans dug in on a tax package that Mr. Domenici said could not be sold to the Senate.

At the same time, negotiations continue over a new $400 billion prescription drug benefit for Medicare - whose costs are expected to dramatically increase when the baby boomers retire in a decade. Conservative Republicans, especially in the House, worry the benefit could blow federal deficits even higher.

At the heart of the conflict on both Medicare and energy policy is a struggle between two master tax-writers: Rep. Bill Thomas (R) of California and Senator Charles Grassley (R) of Iowa. Mr. Thomas says the only way to keep down the cost of a prescription-drug benefit is to set up competition between private plans and Medicare. Mr. Grassley worries that private competition will not ensure that all seniors, particularly those in rural areas, will benefit. He is demanding a federal "fallback" guarantee, if private providers don't meet the need.

In another bid to control costs, Republicans are also considering requiring whether wealthier seniors should pay more for a drug benefit. Democrats say they will block any plan that links benefits to income, because it will undermine the notion that Medicare benefits are universal. Senate Democrats say they have the 41 votes, including GOP moderates, needed to block any move toward privatization of Medicare. "That is virtually a showstopper," said Senate majority leader Tom Daschle last week.

"Means testing is an obvious way of saving money," says Gary Burtless, a Brookings Institution fellow. "But evidence from the history of social insurance programs in the US shows that when the well-off feel they are disconnected from the benefits, they tend to change from being mildly supportive to being actively opposed."

GOP concerns over deficits are less pronounced on the revenue side. Tuesday the House Ways and Means committee takes up some $142 billion in new tax breaks for US corporations. With offsets, the total cost to the Treasury will be less than $60 billion, say GOP staff. GOP moderates in both the House and Senate say any future tax cuts must be revenue neutral. Mr. Thomas, who drafted the plan, says it comes down to a choice between jobs and the deficit: solve the job problem, and government revenues will increase.

Meanwhile, Democrats decry the Bush tax cuts, but are not lining up votes to overturn them. "Members of Congress don't want to undo the tax cuts, because they don't want to be accused of raising taxes or cutting any bit of spending that is going to affect their constituents," says Robert Bixby, executive director of the Concord Coalition, a public interest group.

"Paying the bill for prescription drugs for today's elderly is really not so much the problem. It's what's going to happen when the boomers retire and the number of elderly beneficiaries rises dramatically over the following decades. We're not seeing any discussion of tradeoffs," he adds.

Members were particularly reluctant to trade off their own annual $3,400 salary increase in the interest of deficit cutting. The current salary for members not in leadership is $154,700. The Senate voted to defeat a move to block this 2.2 percent automatic pay increase on Friday. The increase was approved by the House in September, and is expected to be signed into law by President Bush as part of the Transportation and Treasury Department Appropriations bill. The raise takes effect Jan 1.

"Members of Congress have the only job in the country whose occupants can set their own salary without regard to performance, profit, or economic climate," says Tom Schatz, president of the Council for Citizens Against Government Waste.

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