The economic outlook of the White House budget director

In the midst of a budget clash between Congress and the White House, Office of Management and Budget Director Jim Nussle offered a note of caution on how an economic slowdown could affect government finances at a Monitor-sponsored breakfast Wednesday.

Mr. Nussle spoke to reporters the day after what The Washington Post called "a full-scale battle" broke out in Washington on federal budget issues. The tussle began Tuesday when President Bush vetoed the $606 billion health and education spending bill, which is a top priority for Democrats. In discussing his sixth veto, the president charged the Democratic majority with acting "like a teenager with a new credit card."

Later the same day, Senate majority leader Harry Reid (D) of Nevada said Congress will not authorize additional funds for the war in Iraq without a commitment by Mr. Bush to begin bringing the troops home. The House and Senate were slated to act this week on legislation that would provide $50 billion in war funding and set a goal of ending combat by December 2008. Senator Reid said that if Bush vetoes the measure, "then the president won't get his $50 billion."

"Hopefully just bluster is what I would call what Reid said," Nussle told reporters. "I hope that is all it is and not a serious leadership or legislative position. I hope that the bluster is because he is getting a lot of … blowback from the far left here. But it doesn't answer the question of how are you going to responsibly fund that which we have asked our men and women to do in harm's way."

Nussle also was critical of a report by the Democratic staff of the Joint Economic Committee, which said the wars in Iraq and Afghanistan had cost the country $1.5 trillion – nearly double the $804 billion the White House has spent or requested for the wars through 2008. The study cited the conflicts' "hidden costs" – including higher oil prices, the expense of treating wounded veterans, and interest payments on the money borrowed to pay for the wars. It also said that the conflicts are pulling reservists and National Guardsmen away from their jobs, resulting in economic disruptions for US employers that the report estimates at $1 billion to $2 billion.

"Unfortunately, what the Joint Economic Committee did, it was used for unfortunately partisan or PR purposes," Nussle said. "The Democrats are having a difficult time right now managing their own caucus vis-à-vis the war funding.... Unfortunately, [on Tuesday] they haven't had any or at least not a lot of recent bad news with regard to the war, and so they decided to manufacture some bad news on their own."

There has been a fair amount of sobering news on the economy lately. Last week, Federal Reserve Chairman Ben Bernanke said the US economy will slow "noticeably" in the final three months of the year. And this week, Augustine Faucher, an economist with Moody's Economy.com, told the Associated Press that he expected the federal budget deficit for the current budget year to rise to about $200 billion.

"Revenue growth has slowed dramatically as economic growth has softened," Mr. Faucher said. The Congressional Budget Office's current estimate for this year's federal deficit is $155 billion.

Nussle did not offer a specific projection for the deficit but did strike a note of caution on government finances. "The concern I would have overall for this next year is more in the area of economic growth," Nussle said. "In the past few years … economic growth has surprised us to the positive, and that in turn has had some acceleration in revenue. This coming year, we may not see those surprises to the good. We may either hit it right on the head as we have the last couple of months, or we may see a slight decline."

Slower expected growth is one reason the Bush administration opposes fixing the alternative minimum tax (AMT) with offsetting revenue from other sources, Nussle said. Last week, the House passed a measure that kept the AMT from hitting middle-class families and offset the loss of revenue to the government by raising taxes on equity fund managers and multinational corporations.

"Again, going back to this whole notion of the potential of a slowing of economic growth – not a recession, certainly, but slower growth than possibly was anticipated – this would be the wrong time to have a tax increase," Nussle said. "It would not have a good effect for the economy. This is not the time to take economic growth for granted. And so we do not support raising taxes at this point in time in order to pay for whether it is AMT relief or more spending."

The director of the Office of Management and Budget (OMB) offered a spirited defense of Bush's economic legacy when he was asked about an article in the December issue of Vanity Fair by Nobel laureate in economics Joseph Stiglitz. Mr. Stiglitz, who worked for President Clinton, charged: "The economic effects of Bush's presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America's being displaced from its position as the world's richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush."

"This is somebody that worked for Clinton.... I guess enough said," Nussle quipped. Then he added, "The president kept America safe. Let's start with that. And unless the country is safe and free, your economy is not going to work. So if you are putting the economy before the safety and freedom of the country, I believe you are missing the point."

Nussle is in his third month as OMB director after a long career in Congress. He earned a bachelor's degree from Luther College in Decorah, Iowa, and a law degree from Drake University in Des Moines, Iowa. In 1990, at age 30, he won a seat in Congress. While on the Hill, he served as a member of the Agriculture, Banking, and Ways and Means Committees and was chair of the House budget panel. He retired from Congress in 2007 after making an unsuccessful run for governor of Iowa.