On the federal deficit, candidates stay mostly vague

Rising entitlement costs and Iraq war expenses take a back seat to shorter-term stimulus plans.

Republicans Round 1: Rudolph Giuliani: The former New York Mayor hopes to index the Alternative Minimum Tax to inflation and reduce the civilian federal work force by 20 percent through attrition and retirement. Mike Huckabee: The former Arkansas Gov. would eliminate the income tax. Mitt Romney: The former Massachusetts Gov. would allow the US discretionary spending budget to increase only at the rate of inflation, minus one percent.
Republicans Round 2: Ron Paul: US Rep. Paul wishes to eliminate the income tax, and proposes eliminating entire departments within the executive branch. Fred Thompson: Former Sen. Fred Thompson of Tennessee promises to eliminate the Alternative Minimum Tax and his response to the entitlement problem includes a reduction in future Social Security benefits produced by linking benefit increases to the rate of inflation rather than wage growth. John McCain: Sen. McCain also promises to eliminate the Alternative MinimumTax and has also declared all-out war on congressional earmarks.

Here's some straight talk you're unlikely to hear from most presidential candidates: The next occupant of the Oval Office may have to make some very tough budget choices.

A flood of retiring baby boomers – plus rising healthcare costs – will soon send spending on federal entitlement programs soaring. Revenue won't keep pace, unless Washington allows President Bush's tax cuts to expire and stops shielding the middle class from the bite of the Alternative Minimum Tax.

Even then, Social Security and Medicare costs, piled on top of the expense of the Iraq war, could eventually cause the deficit to explode. It's a structural economic problem that most of the major candidates address only in the vaguest of terms.

"I don't think you're getting a lot of realistic rhetoric or plans from candidates overall," says Robert Bixby, executive director of the Concord Coalition, a budget watchdog group.

In their Jan. 21 debate in Myrtle Beach, S.C., Sen. Hillary Clinton and Sen. Barack Obama clashed over many things, including who would be the most fiscally responsible candidate in the Democratic race. Each charged that the other's ideas for new programs weren't fully offset by new revenues or cuts in other programs. In addition, Senator Obama took a shot at Republican orthodoxy, saying that it now included ideas such as "moving back from a balanced budget and a surplus to deficit and debt."

Candidates face enormous pressure to please voters with expensive promises that appeal to the party faithful. For Democrats, that usually means new or expanded government programs. For Republicans, it's often lower taxes.

Yet "the next President will inherit a fiscally lethal combination of changing demographics, rising health care costs, and falling national savings," according to a Brookings Institution analysis of the economic outlook facing the victor.

While the deficit has dipped to $163 billion for fiscal year 2007, the first members of the baby boom generation, born in 1946, will be eligible for Social Security this year. Over the next two decades, more than 80 million boomers will become eligible for US entitlement programs. That's about 10,000 people per day.

Thus deficits may widen again during the next administration. If Congress stops passing its annual AMT shield, and the Bush tax reductions expire as scheduled, the red ink could surpass $500 billion a year by 2016.

"Without reforms in the near term, the dramatic increases in [entitlement spending] will ultimately require substantial tax increases, major benefit reductions, or massive and unsustainable amounts of borrowing," notes the White House Office of Management and Budget in a 2008 Budget review.

At issue are the candidates' long-term fiscal plans, not their short-term stimulus package ideas for avoiding a recession.

On the Republican side, most of the candidates pledge to make the Bush tax cuts permanent. (Former Arkansas Gov. Mike Huckabee and US Rep. Ron Paul would eliminate the income tax altogether.) Sen. John McCain and former Sen. Fred Thompson of Tennessee have promised to eliminate the Alternative Minimum Tax, while Rudy Giuliani, former mayor of New York, would index it to inflation.

On spending, former Massachusetts Gov. Mitt Romney says he would allow the US discretionary spending budget to increase at only the rate of inflation, minus one percent. Mr. McCain vows all-out war against congressional earmarks, the local projects lawmakers insert into appropriations bills to win the favor of voters at home. Mr. Giuliani's self-described "plan to restore fiscal discipline" includes the reduction of the civilian federal work force by 20 percent through attrition and retirement.

Mr. Paul, who advocates extremely limited government, proposes to eliminate entire executive branch departments.

Most of the GOP contenders acknowledge the need to reform the big entitlement programs, while avoiding specifics. However, in the past McCain has said he would be willing to lift the cap on income subject to Social Security taxes as part of an entitlement reform deal. And Mr. Thompson has produced a fairly detailed response to the entitlement problem, which includes a reduction in future Social Security benefits produced by linking benefit increases to the rate of inflation, not wage growth.

The Democratic candidates say they would all repeal the Bush tax cuts, to varying degrees. Mrs. Clinton has talked about changing, but not eliminating, the AMT.

Mr. Obama calls for the enforcement of congressional pay-as-you-go budgeting rules, in which new programs or tax cuts are paid for by reductions in other programs, or new revenue. He also vows to end to what he judges wasteful spending, including subsidies to the oil and gas and private student loan industries. And the first move to make to strengthen Social Security, he says, is to raise the Social Security tax income cap, currently $97,500 per worker.

Clinton would also restore pay-as-you-go discipline, she says. She criticizes Obama's proposal to raise the cap on income subject to the Social Security payroll tax, calling it a "trillion-dollar increase on middle-class families." If elected, she will call for a bipartisan commission to address entitlement program problems.

Former Sen. John Edwards of North Carolina says he is committed to not making the deficit worse, but that he does not view deficit reduction as important as universal health care or global warming. On Social Security, he says he is opposed to raising the retirement age or cutting current or future benefits.

In general, the 2008 presidential candidates are talking about taxes and spending as separate propositions, complains Mr. Bixby of the Concord Coalition.

Rolling back the Bush tax cuts would pay for only a relatively small portion of the projected future rise in entitlements, he says, and given the sheer size of Social Security, Medicare, and defense spending, ending earmarked local projects would have little overall fiscal effect.

"What voters should look for" in a candidate he says, is, "Is there an acknowledgement that there are hard choices ahead?"

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