The US federal budget is "out of control," warns Goldman Sachs economist Ed McKelvey. "Any thoughts of relief ... are a pipe dream until political realities adjust." A growing number of economists agree.
Still, the Bush economic team says its plan for dealing with looming budget deficits is simply to promote faster economic growth and exercise spending restraint.
Is that a plan built only on hope?
To be sure, economic figures out last week provided encouraging news. The US gross domestic product rocketed ahead at an 8.2 percent pace in the July-to-September period, the fastest clip since 1984. Corporate profits soared 30 percent.
Most experts expect the economy to trot along at a 4 percent pace in the final three months of the year and at about the same rate in 2004. That will boost government tax receipts to some degree but won't be enough to offset a spending boom in Washington.
Some of the increased spending is needed. Since Sept. 11, the defense budget has risen 34 percent. But that was not offset by cuts or restraint in other expenditures. Figures for the government budget year that ended in October show nonmilitary discretionary spending up by 8.5 percent.
Since then, Congress has approved a prescription-drug benefit for seniors that will cost an estimated $400 billion over 10 years. The Congressional Budget Office says the measure could require between $1.7 trillion and $2 trillion in its second decade as baby boomers retire.
Less publicized impacts on the budget include $22 billion in expanded veterans benefits and a plan to overhaul the tax treatment of international corporations that involves $60 billion in new tax breaks.
The Bush team needs to reduce the deficit sooner rather than later, especially before all the tax cuts it won from Congress kick in. Those cuts could trim government income by $1.7 trillion over the next decade.
The imbalance can be seen in the fact that recent government spending totaled $20,301 per household, the highest level (in noninflated dollars) since World War II. But taxes to support that spending are only $17,000 per household, according to the Heritage Foundation.
Goldman Sachs economist Mr. McKelvey predicts the combination of tax cuts and growing spending will push the 2004 budget deficit to $525 billion this year, up from $375 in the budget year just ended.
Three years ago the budget was in surplus by $237 billion. The swing from a surplus to a half-trillion dollar deficit is the worst three-year setback in government finances since the Korean War.
The political realities surrounding the spending spree are laced with irony. Democrats, with a well-known tax-and-spend history, now decry Republican fiscal mismanagement. Senate Minority Leader Tom Daschle told a Monitor breakfast that "every single bill that passes is loaded with payouts to the special interests." And some conservatives are also critical of the way Republicans have managed the nation's finances now that they control both Congress and the White House.
Solving the fiscal free-for-all is difficult because the effects of red ink "are corrosive rather than catastrophic," as McKelvey notes. The financial reckoning may well come after the 2004, election when the government may need to borrow more - driving up commercial interest rates and stalling the very growth that's supposed to generate more tax revenue.
The elections next year will serve a purpose in sending a signal on how much voters want to cut spending more than roll back the tax cuts. Either way, Washington shouldn't saddle future generations with huge debts.