The Bush administration yesterday formally proposed to Congress what could become the largest financial bailout in U.S. history, requesting virtually unfettered authority for the Treasury to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.
The plan would raise the US National Debt to $10.4 trillion from the current $9.7 trillion.
The proposal was stunning in its simplicity: less than three pages, it would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semi-annual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.
Democratic congressional leaders have pledged to help approve legislation by the end of this week.
The plan, an ambitious effort to transfer the bad debts of Wall Street into the obligations of American taxpayers, was put forward by the administration late last week after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.
Bush pledged to work with Congress to quickly pass legislation as part of the biggest financial bailout since the Great Depression.
"It's big because it needed to be big," Bush said, acknowledging hundreds of billions of dollars in taxpayer money is being put at risk. He added that the risk of doing nothing far outweighed the risks of government intervention.
"People are beginning to doubt our system, people were losing confidence, and I understand it's important to have confidence in our financial system," he said.
Bush's remarks capped a roller-coaster week on Wall Street. The Federal Reserve engineered an $85 billion takeover of insurance giant AIG after seizing control of housing giants Freddie Mac and Fannie Mae earlier in the month. One investment giant, Lehman Brothers, collapsed and a second, Merrill Lynch, was purchased by rival Bank of America for less than half its value.
The government must bail out the financial system "because if we don't, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest," House Speaker Nancy Pelosi, a Democrat, said at a citizens' workshop in San Francisco.
But, she added, "We cannot deal with this unless this bailout helps families stay in their homes."
Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and that it put new limits on executive compensation.
Signalling what could erupt into a brutal fight with Democrats over add-on spending, the House's top Republican, Ohio Representative John Boehner, warned "efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors and small businesses deserve."
Treasury officials met congressional staff for about two hours on Capitol Hill yesterday. Also among the key issues up for negotiation is which financial institutions would be eligible for the help. The proposed legislation doesn't make it clear, leaving open the question of whether hedge funds or pension funds could qualify.
Don’t be surprised if the US defaults on debt
September 13th 2008 - On October 30, 1938, the American Radio Drama series Mercury Theatre aired The War of the Worlds, directed by Orson Welles. Adapted from H G Wells’ novel, the first half of the broadcast was scripted as a series of dramatic news bulletins of a Martian invasion. Listeners who had missed or ignored the opening credits assumed that the invasion was real. People fled their homes in panic and phone calls swamped police.
The financial equivalent of this broadcast today would be an announcement: “We interrupt regular programming to announce that the United States of America has defaulted on its debt!”
Lenders to the US government have suffered significant losses .The losses have not been from non-payment but because repayments have been in a constantly debased currency - the dollar.
Assume a Japanese investor bought 30-year US Treasury bonds in 1985 when the $/yen exchange rate was $1 = yen 250. Based on a current exchange rate of $1 = yen 105, the investor has lost 58% of the investment, though he can take comfort from the fact that at the low of $1 = yen 84, he would have lost 66%.
European investors who bought US government bonds in recent years would also have suffered significant losses. Based on the highest $/ euro exchange rate (1 euro = $0.85) and recent trading levels (euro1 = $1.56), the investor would have lost (up to) 46%.
Despite official “strong dollar” policies, a case can be made that the US is in the process of defaulting on its obligations via a systematic devaluation of its currency.
As of March 2008, US national debt stood at $9.4 trillion. This equates to over $30,000 per person in the US or a little over $60,000 per head of the US working population. The US national debt has grown by $3 trillion (50%) since 2000, when it was $6 trillion. In 2007 alone, it grew by $500 billion, from $8.7 to $9.2 trillion. In 2005, it was 67% of US GDP, up from 51% in 1988. The Office of Management and Budget projects that total debt will rise to $12.3 trillion in 2013.
Of the $4.7 trillion in private hands, $2.4 trillion (51%) is held by foreign investors. Japan holds around $600 billion (24%) and China holds $500 billion (around 20%). Oil-exporting countries probably hold another 10-14%.
As James Fallow noted in The Atlantic: “every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.”
In September 2008, the $5.4-trillion-plus in debt and guarantees of the government sponsored enterprises — Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) — became de facto parts of US national debt.
US national debt is also shortening in maturity. In December 2000, the average length of US public debt held by private investors was 70 months. As at March 2008, the average length had shortened to 53 months (a decline of 24%); 71% of this debt is due in less than 5 years and 39% in less than 1 year. The US must now “roll over” significant amounts of debt in the coming years.
High levels of debt are compounded by the “twin deficits” - the 2008 budget deficit forecast is $380 billion (2.4% of GDP) and the current account deficit is expected to exceed $700 billion (4.6% of GDP).
A mainstay of the US economy has been its financial system - “financial” engineering has long overtaken “real” engineering.
Lawrence Summers, a former deputy secretary of the US Treasury, proudly extolled the merits of the US financial system in a 2001 speech at the London Stock Exchange in the following terms: “… the United States is the only country in which you can raise your first $100 million before you buy your first suit.” He gave short shrift to critics who felt that US financial sophistication was synonymous with financial instability: “(That belief) is observed in inverse proportion to knowledge of these matters.”
The US financial system has been badly affected by losses on subprime mortgages and the current credit crisis.
Mohamed El-Erian, co-chief executive of Pimco, summed it up on June 25, 2008: “What has suffered most is the credibility of the most sophisticated financial systems in the world.”
In a 1998 speech during the Asian financial crisis, Summers had preached the merits of American-style “transparency and disclosure”. It is the US that now needs “transparency and disclosure.”
There are other dimensions to the malaise.
John Gapper, a columnist for the Financial Times observed on May 8, 2008: “If anyone doubts the problems of US infrastructure, I suggest he or she take a flight to John F Kennedy airport (braving the landing delay), ride a taxi on the pot-holed and congested Brooklyn-Queens Expressway and try to make a mobile phone call en route. That should settle it, particularly for those who have experienced smooth flights, train rides and road travel, and speedy communications networks in, say, Beijing, Paris or Abu Dhabi recently. The gulf in public and private infrastructure is, to put it mildly, alarming for US competitiveness.”
The factors identified are well known. To quote Summers again: “In this age of electronic money, investors are no longer seduced by a financial dance of a thousand veils. Only hard accurate information on reserves, current account and fiscal and monetary conditions will keep capital from fleeing precipitously at the first sign of trouble.”
Why haven’t the “electronic herd” abandoned the US? Facts, it seems, don’t matter, until they do.
Bush proposes $3.1-trillion budget
February 5th 2008 - President Bush unveiled a $3.1-trillion budget today that would boost military spending and trim health benefits for retirees. The proposal was immediately tagged by Democrats as “irresponsible.”
The first spending plan in history to top $3 trillion would freeze or eliminate many domestic spending programs yet still rack up a $407-billion deficit for fiscal 2009, which begins Oct. 1. The Pentagon is the only department for which Bush proposes a significant increase; its budget would grow 7.5% to $515 billion.
“It’s a good budget,” Bush said after meeting with his Cabinet. “It’s a budget that achieves some important objectives. One, it understands our top priority is to defend our country, so we fund our military as well as fund the homeland security.”
Because Bush is leaving office in a year, his budget proposal is largely an academic exercise. The Democratic-controlled Congress has responsibility for proposing and passing budget bills, and it’s unlikely to adopt his priorities.
The plan’s significance is mostly political. Bush’s proposal seeks to codify the policies he considers his legacies as president, namely the tax cuts he won in 2001 and 2003; significant increases in military spending; and a few education programs, including his No Child Left Behind legislation.
For Democrats, the Bush budget provides a summary of the policies of his administration they find most egregious: the war in Iraq, tax cuts that worsened the federal deficit, and the squeezing of social programs such as Social Security and Medicare.
“This budget is fiscally irresponsible and highly deceptive, hiding the costs of the war in Iraq while increasing our skyrocketing debt,” said Senate Majority Leader Harry Reid (D-Nev.). “President Bush’s fiscal policies are the worst in our nation’s history – he has turned record surpluses into record deficits – and this budget is more of the same.”
Bush said the proposal would balance the federal budget by 2012. But Democrats said it would do so by relying on accounting tricks, including ignoring most funding for the Iraq war and pretending that the government would essentially permit a huge tax increase on the middle class by not rescinding the alternative minimum tax after Bush leaves office.
“The president proposes more of the same failed policies he has embraced throughout his time in office – more deficit-financed war spending, more deficit-financed tax cuts tilted to benefit the wealthiest and more borrowing from foreign nations like China and Japan,” said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee.
The deficit projections are also worsened by the $146-billion economic stimulus package negotiated between the administration and Congress in an effort to soften or forestall a feared recession. The budget assumes a 3% increase in gross domestic product this year, a rate that is unlikely if the economy continues to slow down as it has in recent months.
“When President Bush took office, the national debt stood at $5.7 trillion,” said Rep. John M. Spratt Jr. (D-S.C.). chairman of the House Budget Committee. “Today it is $9.2 trillion and rising, projected to increase to $9.7 trillion by the time President Bush leaves office – up by $4 trillion in eight years. This is the legacy our children and grandchildren will inherit from the fiscal policy of this administration.”
But the administration hailed the budget as balanced and innovative.
In a cost-saving gesture, the government for the first time did not provide free copies of the four-volume proposal to Congress, instead releasing it online and charging $200 per printed copy ordered through the Government Printing Office.
“It’s not only an innovative budget, in that it’s coming to Congress over the Internet, it’s a budget that’s balanced – gets to balance in 2012 and saves taxpayers money,” Bush said.
A hefty chunk of the proposed savings would come from the government’s two giant healthcare programs, Medicare and Medicaid, but leading Democratic lawmakers have already called the cuts unacceptable.
Medicare, which serves about 44 million seniors and disabled people, would be squeezed by $178 billion over five years, reducing its growth from an average of 7.2% a year to 5% a year. At least $115 billion of the savings would come from reduced payments to hospitals, according to initial calculations by a senior Democratic congressional aide. Hospitals and other providers in traditional Medicare would face the sharpest cuts, and private health insurance plans that now constitute one of the fastest-growing parts of the program would get only a light trim, critics said.
Over 10 years, Bush’s proposed Medicare savings would grow to $556 billion.
The president also called for reductions totaling $17 billion over five years in Medicaid, a federal-state partnership that serves some 55 million people, including the poor and many elderly nursing home residents.
Although the scale of Bush’s Medicare reductions appear to be far beyond what Congress would accept, some of his specific proposals may make into law. Congress must act by the summer to roll back a scheduled cut in Medicare fees to doctors, and it will have to consider cutting other parts of the program to offset the added costs of protecting physicians.
Addressing other health priorities, Bush proposed a modest increase in the Food and Drug Administration’s food safety budget, but some critics said it would do little more than offset inflation. And public health advocates protested a proposed 7% cut for the Centers for Disease Control and Prevention.
The first spending plan in history to top $3 trillion would freeze or eliminate many domestic spending programs yet still rack up a $407-billion deficit for fiscal 2009, which begins Oct. 1. The Pentagon is the only department for which Bush proposes a significant increase; its budget would grow 7.5% to $515 billion.
“It’s a good budget,” Bush said after meeting with his Cabinet. “It’s a budget that achieves some important objectives. One, it understands our top priority is to defend our country, so we fund our military as well as fund the homeland security.”
Because Bush is leaving office in a year, his budget proposal is largely an academic exercise. The Democratic-controlled Congress has responsibility for proposing and passing budget bills, and it’s unlikely to adopt his priorities.
The plan’s significance is mostly political. Bush’s proposal seeks to codify the policies he considers his legacies as president, namely the tax cuts he won in 2001 and 2003; significant increases in military spending; and a few education programs, including his No Child Left Behind legislation.
For Democrats, the Bush budget provides a summary of the policies of his administration they find most egregious: the war in Iraq, tax cuts that worsened the federal deficit, and the squeezing of social programs such as Social Security and Medicare.
“This budget is fiscally irresponsible and highly deceptive, hiding the costs of the war in Iraq while increasing our skyrocketing debt,” said Senate Majority Leader Harry Reid (D-Nev.). “President Bush’s fiscal policies are the worst in our nation’s history – he has turned record surpluses into record deficits – and this budget is more of the same.”
Bush said the proposal would balance the federal budget by 2012. But Democrats said it would do so by relying on accounting tricks, including ignoring most funding for the Iraq war and pretending that the government would essentially permit a huge tax increase on the middle class by not rescinding the alternative minimum tax after Bush leaves office.
“The president proposes more of the same failed policies he has embraced throughout his time in office – more deficit-financed war spending, more deficit-financed tax cuts tilted to benefit the wealthiest and more borrowing from foreign nations like China and Japan,” said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee.
The deficit projections are also worsened by the $146-billion economic stimulus package negotiated between the administration and Congress in an effort to soften or forestall a feared recession. The budget assumes a 3% increase in gross domestic product this year, a rate that is unlikely if the economy continues to slow down as it has in recent months.
“When President Bush took office, the national debt stood at $5.7 trillion,” said Rep. John M. Spratt Jr. (D-S.C.). chairman of the House Budget Committee. “Today it is $9.2 trillion and rising, projected to increase to $9.7 trillion by the time President Bush leaves office – up by $4 trillion in eight years. This is the legacy our children and grandchildren will inherit from the fiscal policy of this administration.”
But the administration hailed the budget as balanced and innovative.
In a cost-saving gesture, the government for the first time did not provide free copies of the four-volume proposal to Congress, instead releasing it online and charging $200 per printed copy ordered through the Government Printing Office.
“It’s not only an innovative budget, in that it’s coming to Congress over the Internet, it’s a budget that’s balanced – gets to balance in 2012 and saves taxpayers money,” Bush said.
A hefty chunk of the proposed savings would come from the government’s two giant healthcare programs, Medicare and Medicaid, but leading Democratic lawmakers have already called the cuts unacceptable.
Medicare, which serves about 44 million seniors and disabled people, would be squeezed by $178 billion over five years, reducing its growth from an average of 7.2% a year to 5% a year. At least $115 billion of the savings would come from reduced payments to hospitals, according to initial calculations by a senior Democratic congressional aide. Hospitals and other providers in traditional Medicare would face the sharpest cuts, and private health insurance plans that now constitute one of the fastest-growing parts of the program would get only a light trim, critics said.
Over 10 years, Bush’s proposed Medicare savings would grow to $556 billion.
The president also called for reductions totaling $17 billion over five years in Medicaid, a federal-state partnership that serves some 55 million people, including the poor and many elderly nursing home residents.
Although the scale of Bush’s Medicare reductions appear to be far beyond what Congress would accept, some of his specific proposals may make into law. Congress must act by the summer to roll back a scheduled cut in Medicare fees to doctors, and it will have to consider cutting other parts of the program to offset the added costs of protecting physicians.
Addressing other health priorities, Bush proposed a modest increase in the Food and Drug Administration’s food safety budget, but some critics said it would do little more than offset inflation. And public health advocates protested a proposed 7% cut for the Centers for Disease Control and Prevention.
The State of the Union and Its Debt
January 27th 2008 - The financial state of the union is a mess. That's not a surprise. It's in the headlines -- from the mortgage crisis to the wild gyrations of the stock market. Surely President Bush's State of the Union address will touch on those financial issues.
But will the president tell the truth, the whole truth, about the numbers and the extent of our nation's financial woes over the long run? Will he acknowledge the true cost of the emergency economic-stimulus package now being worked out by Congress?
The Institute for Truth in Accounting is determined that the real numbers will not only be spoken and written, but considered by all the candidates running for office this year. This nonprofit, nonpartisan institute has created a Web site to bring the financial facts to the public attention.
Prominently displayed on the home page are two running series of numbers that increase almost faster than the eye can capture. The first is the "official" National Debt, which was $9,193,222,137,000.00 at the instant I checked. (That's the figure taken from the Treasury Department's Web site.) The number is growing by $1 million every minute!
Beneath it is another number, also constantly clicking higher. This, according to the Institute, is the true national debt figure: $55,146,513,890,000.00.
This calculation of the national debt includes all the "off balance sheet" liabilities of the government, such as its promises to pay benefits to Social Security and Medicare recipients far into the future, as well as military and civilian government workers' pensions.
In other words, the true liability of the United States of America is not only the Treasury bills, notes and bonds we sell to finance our annual deficit and past deficits. To get to the true liability, you must include all the promises we've made to make payments in the future.
That's how you get a staggering $55 trillion national debt!
No one talks about those "off balance sheet" obligations. It's as if you only looked at your checkbook balance to figure out your family finances -- and ignored the amount due on your mortgage and your credit cards. That would totally misrepresent the state of your finances.
Do you think you could get a loan if you presented only your checking-account statements? Surely your banker would demand the complete picture. And that's just what's happening around the world, as central banks have been recognizing that the U.S. is on a collision course with debt. The result is evident in the value of the U.S. dollar, which has collapsed over the past year. Foreign central banks have been dumping their dollars in favor of other currencies, as well as commodities like gold.
Of course, those foreign central banks still have huge holdings of U.S. Treasury securities. The U.S. remains the most stable country on the planet, and the safest place to hold assets during a crisis. And, the foreign central banks earn interest on the Treasury securities they hold. So far, they've kept holding our debt as the Fed pushes rates down to stimulate the economy.
All of the political candidates are rushing to give the American public their solutions to an economic slowdown. Most involve sending a check from the government, a rebate on the tax dollars that have been deducted from our paychecks all year long. In the long run, those checks will only increase the deficits, and thus increase our borrowing demand, eventually pushing rates higher.
The only other alternative is for the Fed to "print" (create) the extra money. That is the definition of inflation: excess money creation. As we all learned in the late 1970s, if inflation seems likely, lenders demand higher rates to compensate for the falling buying power of the currency.
If you're thinking the government is caught in a tight spot, you're right. In previous recessions the government could "stimulate" the economy and get growth back on track. Now, because we're so indebted to the rest of the world, our options are limited. If they won't buy our new debt, who will?
The American people need to ask their president, and their presidential candidates, how they'll deal with this tough issue.
Truth in Accounting Institute founder Sheila Weinberg says: "It isn't pretty. But we have to face the truth -- or we could face disaster." That's definitely The Savage Truth.
But will the president tell the truth, the whole truth, about the numbers and the extent of our nation's financial woes over the long run? Will he acknowledge the true cost of the emergency economic-stimulus package now being worked out by Congress?
The Institute for Truth in Accounting is determined that the real numbers will not only be spoken and written, but considered by all the candidates running for office this year. This nonprofit, nonpartisan institute has created a Web site to bring the financial facts to the public attention.
Prominently displayed on the home page are two running series of numbers that increase almost faster than the eye can capture. The first is the "official" National Debt, which was $9,193,222,137,000.00 at the instant I checked. (That's the figure taken from the Treasury Department's Web site.) The number is growing by $1 million every minute!
Beneath it is another number, also constantly clicking higher. This, according to the Institute, is the true national debt figure: $55,146,513,890,000.00.
This calculation of the national debt includes all the "off balance sheet" liabilities of the government, such as its promises to pay benefits to Social Security and Medicare recipients far into the future, as well as military and civilian government workers' pensions.
In other words, the true liability of the United States of America is not only the Treasury bills, notes and bonds we sell to finance our annual deficit and past deficits. To get to the true liability, you must include all the promises we've made to make payments in the future.
That's how you get a staggering $55 trillion national debt!
No one talks about those "off balance sheet" obligations. It's as if you only looked at your checkbook balance to figure out your family finances -- and ignored the amount due on your mortgage and your credit cards. That would totally misrepresent the state of your finances.
Do you think you could get a loan if you presented only your checking-account statements? Surely your banker would demand the complete picture. And that's just what's happening around the world, as central banks have been recognizing that the U.S. is on a collision course with debt. The result is evident in the value of the U.S. dollar, which has collapsed over the past year. Foreign central banks have been dumping their dollars in favor of other currencies, as well as commodities like gold.
Of course, those foreign central banks still have huge holdings of U.S. Treasury securities. The U.S. remains the most stable country on the planet, and the safest place to hold assets during a crisis. And, the foreign central banks earn interest on the Treasury securities they hold. So far, they've kept holding our debt as the Fed pushes rates down to stimulate the economy.
All of the political candidates are rushing to give the American public their solutions to an economic slowdown. Most involve sending a check from the government, a rebate on the tax dollars that have been deducted from our paychecks all year long. In the long run, those checks will only increase the deficits, and thus increase our borrowing demand, eventually pushing rates higher.
The only other alternative is for the Fed to "print" (create) the extra money. That is the definition of inflation: excess money creation. As we all learned in the late 1970s, if inflation seems likely, lenders demand higher rates to compensate for the falling buying power of the currency.
If you're thinking the government is caught in a tight spot, you're right. In previous recessions the government could "stimulate" the economy and get growth back on track. Now, because we're so indebted to the rest of the world, our options are limited. If they won't buy our new debt, who will?
The American people need to ask their president, and their presidential candidates, how they'll deal with this tough issue.
Truth in Accounting Institute founder Sheila Weinberg says: "It isn't pretty. But we have to face the truth -- or we could face disaster." That's definitely The Savage Truth.
Wincing Dems are likely to raise the limit on debt
March 13th 2007 - Congressional Democrats are poised to take the politically uncomfortable but unavoidable step of raising again the federal debt ceiling, using the budget process to increase the nation’s credit limit even though they had hammered Republicans for making the same move in previous years.
Amid growing anticipation of the 2008 budget proposals from the chairmen who will navigate the path to conference, Sen. Kent Conrad (D-N.D.) and Rep. John Spratt (D-S.C.), the ticking clock of the federal debt limit has gone largely unnoticed. But the current ceiling of about $9 trillion is likely to be hit this fall, according to the Bush administration. Although any further raise has the potential to spark partisan and inter-chamber conflict, Congress must pass the hike to prevent the government from defaulting on its debt.
In a March 2 letter to the Senate Budget panel’s leaders, the Senate Finance Committee’s two senior members urged that Congress raise the debt ceiling through the budget reconciliation process.
“We recommend that the budget resolution include reconciliation instructions … to increase this statutory limit,” wrote Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa).
In the closely divided Senate, where Republicans have already slowed down several popular measures, the reconciliation process would block a filibuster of the debt-ceiling bill and shield it from contentious amendments. At the same time, going the reconciliation route would prevent House Democrats from using the “Gephardt Rule,” a tactic that allows the lower chamber to raise the ceiling without taking a roll-call vote that could turn into attack-ad fodder next year.
Whether it’s the House or the Senate that takes the brunt of the burden on whipping a vote to raise the debt limit, attacks from Republicans eager to exploit any cracks in the Democrats’ fiscal discipline are a near certainty.
“The debt limit vote always becomes a carnival for the opposition party,” said Brian Riedl, budget analyst at the conservative-leaning Heritage Foundation. “The opposition always uses the vote to bludgeon the majority, and this year will be no different.”
Anticipating that criticism, Democrats are employing a response similar to the message they used during the continuing resolution debate earlier this year. They preemptively blasted detractors of that spending measure by condemning GOP leaders for “leaving a mess” by failing to finish the appropriations cycle during the 109th Congress.
“It would be very difficult for anyone to say that reaching the public debt limit this close to a Democratic takeover of Congress had anything to do with Democratic policies,” one House Democratic aide said. “There will be some who will make that argument … but their politics drove us to this point. We’re working to make it better.”
Senate Budget Committee Chairman Conrad pointed a finger at the president, saying via e-mail: “It is his borrow-and-spend policies that have resulted in the massive buildup of debt.
“Fortunately, Democrats are working to take this country in a better direction, one that restores fiscal responsibility,” Conrad added. “But it will take time to change Republican policies that have exploded deficits and debt.”
House Speaker Nancy Pelosi (D-Calif.) and other Democratic leaders blasted Republicans at the dawn of the 108th Congress when they reinstated the Gephardt rule after trumpeting its removal during the previous session. In another sign of things to come, House Minority Leader John Boehner (R-Ohio) signaled during his 2006 leadership campaign that he would push for a roll-call vote on all future debt-limit hikes.
One Republican aide forecast that the House would invoke Gephardt and use its budget resolution to increase the debt ceiling, the fifth hike needed since President Bush took office.
“Having reconciliation instructions gives us the option to pursue that if we choose,” the GOP aide said. “[But] historically, we’ve not done it. We take up the path of least resistance. … If I were making predictions, we’ll wait until the very last day that Treasury says [the current limit will last], and the Senate will pass the House-passed bill.”
Robert Bixby, chairman of the Concord Coalition, a nonpartisan budget-analysis group, said he would urge a recorded vote in both houses.
“It gives Congress an opportunity to assess the consequences of past actions,” Bixby said. “Having it go up automatically, while it’s politically convenient, avoids accountability for fiscal policy decisions. If Democrats really wanted to stick to their prior rhetoric, they should have an explicit vote.”
Meanwhile, House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) appeared to reference the Gephardt route in his own letter to the Budget panel.
“The committee notes that it has been the practice of the House to pass a resolution raising the debt ceiling to the level necessary to accommodate the assumptions of the resolution for its first fiscal year,” Rangel wrote.
Both Spratt and Senate Majority Leader Harry Reid (D-Nev.) declined through their offices to comment on which option Democrats currently favor to raise the limit.
The vote may be especially tough for Democratic presidential hopefuls such as Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.). The latter gave a floor speech last spring vilifying the higher credit limit.
“Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said. “America has a debt problem and a failure of leadership.”
Democrats’ ability to invoke Gephardt, however, hinges on their success at passing a budget conference report, which Republicans failed to do last year.
Amid growing anticipation of the 2008 budget proposals from the chairmen who will navigate the path to conference, Sen. Kent Conrad (D-N.D.) and Rep. John Spratt (D-S.C.), the ticking clock of the federal debt limit has gone largely unnoticed. But the current ceiling of about $9 trillion is likely to be hit this fall, according to the Bush administration. Although any further raise has the potential to spark partisan and inter-chamber conflict, Congress must pass the hike to prevent the government from defaulting on its debt.
In a March 2 letter to the Senate Budget panel’s leaders, the Senate Finance Committee’s two senior members urged that Congress raise the debt ceiling through the budget reconciliation process.
“We recommend that the budget resolution include reconciliation instructions … to increase this statutory limit,” wrote Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa).
In the closely divided Senate, where Republicans have already slowed down several popular measures, the reconciliation process would block a filibuster of the debt-ceiling bill and shield it from contentious amendments. At the same time, going the reconciliation route would prevent House Democrats from using the “Gephardt Rule,” a tactic that allows the lower chamber to raise the ceiling without taking a roll-call vote that could turn into attack-ad fodder next year.
Whether it’s the House or the Senate that takes the brunt of the burden on whipping a vote to raise the debt limit, attacks from Republicans eager to exploit any cracks in the Democrats’ fiscal discipline are a near certainty.
“The debt limit vote always becomes a carnival for the opposition party,” said Brian Riedl, budget analyst at the conservative-leaning Heritage Foundation. “The opposition always uses the vote to bludgeon the majority, and this year will be no different.”
Anticipating that criticism, Democrats are employing a response similar to the message they used during the continuing resolution debate earlier this year. They preemptively blasted detractors of that spending measure by condemning GOP leaders for “leaving a mess” by failing to finish the appropriations cycle during the 109th Congress.
“It would be very difficult for anyone to say that reaching the public debt limit this close to a Democratic takeover of Congress had anything to do with Democratic policies,” one House Democratic aide said. “There will be some who will make that argument … but their politics drove us to this point. We’re working to make it better.”
Senate Budget Committee Chairman Conrad pointed a finger at the president, saying via e-mail: “It is his borrow-and-spend policies that have resulted in the massive buildup of debt.
“Fortunately, Democrats are working to take this country in a better direction, one that restores fiscal responsibility,” Conrad added. “But it will take time to change Republican policies that have exploded deficits and debt.”
House Speaker Nancy Pelosi (D-Calif.) and other Democratic leaders blasted Republicans at the dawn of the 108th Congress when they reinstated the Gephardt rule after trumpeting its removal during the previous session. In another sign of things to come, House Minority Leader John Boehner (R-Ohio) signaled during his 2006 leadership campaign that he would push for a roll-call vote on all future debt-limit hikes.
One Republican aide forecast that the House would invoke Gephardt and use its budget resolution to increase the debt ceiling, the fifth hike needed since President Bush took office.
“Having reconciliation instructions gives us the option to pursue that if we choose,” the GOP aide said. “[But] historically, we’ve not done it. We take up the path of least resistance. … If I were making predictions, we’ll wait until the very last day that Treasury says [the current limit will last], and the Senate will pass the House-passed bill.”
Robert Bixby, chairman of the Concord Coalition, a nonpartisan budget-analysis group, said he would urge a recorded vote in both houses.
“It gives Congress an opportunity to assess the consequences of past actions,” Bixby said. “Having it go up automatically, while it’s politically convenient, avoids accountability for fiscal policy decisions. If Democrats really wanted to stick to their prior rhetoric, they should have an explicit vote.”
Meanwhile, House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) appeared to reference the Gephardt route in his own letter to the Budget panel.
“The committee notes that it has been the practice of the House to pass a resolution raising the debt ceiling to the level necessary to accommodate the assumptions of the resolution for its first fiscal year,” Rangel wrote.
Both Spratt and Senate Majority Leader Harry Reid (D-Nev.) declined through their offices to comment on which option Democrats currently favor to raise the limit.
The vote may be especially tough for Democratic presidential hopefuls such as Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.). The latter gave a floor speech last spring vilifying the higher credit limit.
“Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said. “America has a debt problem and a failure of leadership.”
Democrats’ ability to invoke Gephardt, however, hinges on their success at passing a budget conference report, which Republicans failed to do last year.
Congress Sets New Federal Debt Limit: $9 Trillion
March 16th 2006 - Faced with a potential government shutdown, the Senate votes to raise the nation's debt limit for the fourth time in five years. The bill passed by a 52-48 vote, increasing the ceiling to $9 trillion. The bill now goes to the president.
The debt now stands at more than $8.2 trillion.
Like many cash-strapped Americans who have maxed-out credit cards, the federal government has hit its limit for borrowing funds to keep operating. If the limit isn't raised, the government likely will run out of borrowing authority within days, risking a shutdown.
When President Bush took office five years ago, the national debt was at $5.6 trillion; since then, big budget surpluses have collapsed into huge deficits, and the debt has shot up nearly 50 percent.
Few lawmakers, though, wish to be on record as authorizing more debt -- the House goes so far as to hike the limit automatically. And Senate Democrats are telling their Republican counterparts not to expect any help from them, particularly in an election year.
If any amendments are attached to the Senate's debt measure, the House would be forced to vote on raising the limit -- the last thing many lawmakers seeking re-election want to be on the record as doing.
Treasury Secretary John Snow wrote congressional leaders last week, imploring them to immediately raise the $8.2 trillion debt limit. The House has put the new limit at $9 trillion.
The debt now stands at more than $8.2 trillion.
Like many cash-strapped Americans who have maxed-out credit cards, the federal government has hit its limit for borrowing funds to keep operating. If the limit isn't raised, the government likely will run out of borrowing authority within days, risking a shutdown.
When President Bush took office five years ago, the national debt was at $5.6 trillion; since then, big budget surpluses have collapsed into huge deficits, and the debt has shot up nearly 50 percent.
Few lawmakers, though, wish to be on record as authorizing more debt -- the House goes so far as to hike the limit automatically. And Senate Democrats are telling their Republican counterparts not to expect any help from them, particularly in an election year.
If any amendments are attached to the Senate's debt measure, the House would be forced to vote on raising the limit -- the last thing many lawmakers seeking re-election want to be on the record as doing.
Treasury Secretary John Snow wrote congressional leaders last week, imploring them to immediately raise the $8.2 trillion debt limit. The House has put the new limit at $9 trillion.
U.S. moves to miss hitting debt ceiling
February 16th 2006 - The U.S. Treasury acted Thursday to avoid hitting the national debt limit and said it's "imperative" Congress raise the debt ceiling by the middle of March.
Treasury is suspending reinvestment in the so-called "G-Fund," an investment vehicle for a federal employees' retirement system. The action will free up $65.266 billion, a Treasury spokeswoman said.
"Without this action we would reach the debt limit today," spokeswoman Brookly McLaughlin said Thursday.
Congress and the Bush administration have been negotiating an increase in the current $8.18 trillion debt limit. On Wednesday Treasury said it would suspend sales of state and local government non-marketable securities.
Now Treasury Secretary John Snow is urging Congress to raise the debt limit by mid-March.
"I know that you share the president's and my commitment to maintaining the full faith and credit of the United States," Snow wrote to Senate Majority Leader Bill Frist, R-Tenn., on Thursday.
Beneficiaries of the government retirement fund won't be affected by the temporary halting of reinvestment, Snow explained to Frist. The fund will recoup all payments, including interest, Snow said.
"Once I am able to make the G-Fund whole, the effect on the G-Fund and its beneficiaries will be the same as if this temporary action had never taken place," Snow wrote to Frist.
Meanwhile, with the federal budget deficit projected to reach $423 billion in 2006, both Republicans and Democrats have so far balked at raising the debt limit.
Treasury is suspending reinvestment in the so-called "G-Fund," an investment vehicle for a federal employees' retirement system. The action will free up $65.266 billion, a Treasury spokeswoman said.
"Without this action we would reach the debt limit today," spokeswoman Brookly McLaughlin said Thursday.
Congress and the Bush administration have been negotiating an increase in the current $8.18 trillion debt limit. On Wednesday Treasury said it would suspend sales of state and local government non-marketable securities.
Now Treasury Secretary John Snow is urging Congress to raise the debt limit by mid-March.
"I know that you share the president's and my commitment to maintaining the full faith and credit of the United States," Snow wrote to Senate Majority Leader Bill Frist, R-Tenn., on Thursday.
Beneficiaries of the government retirement fund won't be affected by the temporary halting of reinvestment, Snow explained to Frist. The fund will recoup all payments, including interest, Snow said.
"Once I am able to make the G-Fund whole, the effect on the G-Fund and its beneficiaries will be the same as if this temporary action had never taken place," Snow wrote to Frist.
Meanwhile, with the federal budget deficit projected to reach $423 billion in 2006, both Republicans and Democrats have so far balked at raising the debt limit.
Bush's Budget Sparks Bipartisan Protest
February 7th 2006 - The administration defended President Bush's $2.77 trillion budget plan on Tuesday against congressional attacks that the cuts it sought to deal with exploding budget deficits would unfairly harm government efforts in education, health care and farm programs.
Treasury Secretary John Snow, among leadoff witnesses in a series of congressional hearings, said the administration had made the tough choices to fund programs that were working and eliminate those that were not.
"This budget represents the president's dedication to fiscal discipline, an efficient federal government and the continuation of a thriving U.S. economy," Snow told the Senate Finance Committee.
But critics noted that the deficit for the current budget year would rise to an all-time high of $423 billion and they questioned Bush's projections for declining deficits in future years.
Democrats said Bush's proposed budget for Fiscal 2007, beginning Oct. 1, was seriously understating spending that will be needed to fight wars in Iraq and Afghanistan and did not include the billions of dollars needed in future years to make sure the alternative minimum tax designed for the wealthy does not pinch more and more middle class taxpayers.
Sen. Max Baucus, D-Mont., said the explosion of federal deficits was adding to the national debt, requiring the administration to come to Congress in the next few weeks to raise the $8.18 trillion debt ceiling. He said all of that debt is being financed more and more by foreigners.
"America is borrowing 80 percent of the world's annual savings. We are handing our children and our children's children a set of obligations they will owe to foreign central banks," Baucus told Snow.
Sen. Kent Conrad, D-N.D., produced charts showing that the amount of federal government debt held by foreigners before Bush became president totaled $1 trillion and now in the first five years of his administration has more than doubled.
Snow said the ability of the United States to pay interest on the debt was a function of the economy's size and the vitality of the nation's bond markets.
"There is no doubt given the deep and liquid capital markets of the United States, that we will continue to attract capital from investors around the world," the Treasury secretary told the committee.
Testifying separately before the Senate Armed Services Committee, Defense Secretary Donald H. Rumsfeld said the military must continue to change in order to defend against terrorists who could get a nuclear weapon or launch a biological attack.
"No nation, no matter how powerful, has the resources or capability to defend everywhere, at every time, against every conceivable type of attack," Rumsfeld said. "The only way to protect the American people, therefore, is to provide our military with as wide a range of capabilities, rather than preparing to confront any one particular threat.
Bush's budget, which was sent to Congress on Monday, has faced predictable criticism from Democrats but it is also facing attacks from Republicans.
Sen. Arlen Specter, R-Pa., called Bush's proposed cuts in education and health "scandalous" while Sen. Olympia Snowe, R-Maine, said she was "disappointed and even surprised" at the extent of the administration's proposed cuts in Medicaid and Medicare.
Bush's spending blueprint for the 2007 budget year that begins Oct. 1 would provide large increases for the military and homeland security but would trim spending in the one-sixth of the budget that covers the rest of discretionary spending. Nine Cabinet agencies would see outright reductions with the biggest percentage cuts occurring in the departments of Transportation, Justice and Agriculture.
And in mandatory programs _ so-called because the government must provide benefits to all who qualify _ the president is seeking over the next five years savings of $36 billion in Medicare, $5 billion in farm subsidy programs, $4.9 billion in Medicaid support for poor children's health care and $16.7 billion in additional payments from companies to shore up the government's besieged pension benefit agency.
Senate Finance Committee Chairman Charles Grassley noted that Congress has just completed a yearlong battle to achieve far smaller savings in Medicaid and Medicare and "any more reductions of a significant scope could be difficult this year."
Bush's budget would meet his twin goals of making permanent his first-term tax cuts, which are set to expire by 2010, and cutting the deficit in half by 2009, the year he leaves office.
Democrats, hoping to wrest control of Congress from the Republicans in this year's election, charged that Bush was forced into an austere spending plan because of the estimated $1.35 trillion over the next decade that it will cost to extend his first-term tax cuts, which Democrats claim primarily benefit the very wealthy.
In addition to strict limits on most discretionary, non-security spending in the budget, Bush sought drastic cuts or total elimination on 141 programs that would produce savings of nearly $15 billion in 2007.
The targeted programs included 42 in the area of education ranging from drug-free schools to federal support for the arts, technology and parent-resource centers.
Even previously favored agencies such as the National Institutes of Health were not immune from the budget knife with overall funding essentially frozen and many individual programs seeing budget cuts. That brought objections from groups ranging from the American Heart Association to the American Diabetes Association.
Bush's budget submission is just the opening round in what opponents are promising will be a spirited fight in Congress over spending priorities.
"The president's budget slashes resources for exactly the priorities we should be supporting _ groundbreaking medical research, health care for our seniors, and education for our kids," said Sen. Tom Harkin, D-Iowa.
Treasury Secretary John Snow, among leadoff witnesses in a series of congressional hearings, said the administration had made the tough choices to fund programs that were working and eliminate those that were not.
"This budget represents the president's dedication to fiscal discipline, an efficient federal government and the continuation of a thriving U.S. economy," Snow told the Senate Finance Committee.
But critics noted that the deficit for the current budget year would rise to an all-time high of $423 billion and they questioned Bush's projections for declining deficits in future years.
Democrats said Bush's proposed budget for Fiscal 2007, beginning Oct. 1, was seriously understating spending that will be needed to fight wars in Iraq and Afghanistan and did not include the billions of dollars needed in future years to make sure the alternative minimum tax designed for the wealthy does not pinch more and more middle class taxpayers.
Sen. Max Baucus, D-Mont., said the explosion of federal deficits was adding to the national debt, requiring the administration to come to Congress in the next few weeks to raise the $8.18 trillion debt ceiling. He said all of that debt is being financed more and more by foreigners.
"America is borrowing 80 percent of the world's annual savings. We are handing our children and our children's children a set of obligations they will owe to foreign central banks," Baucus told Snow.
Sen. Kent Conrad, D-N.D., produced charts showing that the amount of federal government debt held by foreigners before Bush became president totaled $1 trillion and now in the first five years of his administration has more than doubled.
Snow said the ability of the United States to pay interest on the debt was a function of the economy's size and the vitality of the nation's bond markets.
"There is no doubt given the deep and liquid capital markets of the United States, that we will continue to attract capital from investors around the world," the Treasury secretary told the committee.
Testifying separately before the Senate Armed Services Committee, Defense Secretary Donald H. Rumsfeld said the military must continue to change in order to defend against terrorists who could get a nuclear weapon or launch a biological attack.
"No nation, no matter how powerful, has the resources or capability to defend everywhere, at every time, against every conceivable type of attack," Rumsfeld said. "The only way to protect the American people, therefore, is to provide our military with as wide a range of capabilities, rather than preparing to confront any one particular threat.
Bush's budget, which was sent to Congress on Monday, has faced predictable criticism from Democrats but it is also facing attacks from Republicans.
Sen. Arlen Specter, R-Pa., called Bush's proposed cuts in education and health "scandalous" while Sen. Olympia Snowe, R-Maine, said she was "disappointed and even surprised" at the extent of the administration's proposed cuts in Medicaid and Medicare.
Bush's spending blueprint for the 2007 budget year that begins Oct. 1 would provide large increases for the military and homeland security but would trim spending in the one-sixth of the budget that covers the rest of discretionary spending. Nine Cabinet agencies would see outright reductions with the biggest percentage cuts occurring in the departments of Transportation, Justice and Agriculture.
And in mandatory programs _ so-called because the government must provide benefits to all who qualify _ the president is seeking over the next five years savings of $36 billion in Medicare, $5 billion in farm subsidy programs, $4.9 billion in Medicaid support for poor children's health care and $16.7 billion in additional payments from companies to shore up the government's besieged pension benefit agency.
Senate Finance Committee Chairman Charles Grassley noted that Congress has just completed a yearlong battle to achieve far smaller savings in Medicaid and Medicare and "any more reductions of a significant scope could be difficult this year."
Bush's budget would meet his twin goals of making permanent his first-term tax cuts, which are set to expire by 2010, and cutting the deficit in half by 2009, the year he leaves office.
Democrats, hoping to wrest control of Congress from the Republicans in this year's election, charged that Bush was forced into an austere spending plan because of the estimated $1.35 trillion over the next decade that it will cost to extend his first-term tax cuts, which Democrats claim primarily benefit the very wealthy.
In addition to strict limits on most discretionary, non-security spending in the budget, Bush sought drastic cuts or total elimination on 141 programs that would produce savings of nearly $15 billion in 2007.
The targeted programs included 42 in the area of education ranging from drug-free schools to federal support for the arts, technology and parent-resource centers.
Even previously favored agencies such as the National Institutes of Health were not immune from the budget knife with overall funding essentially frozen and many individual programs seeing budget cuts. That brought objections from groups ranging from the American Heart Association to the American Diabetes Association.
Bush's budget submission is just the opening round in what opponents are promising will be a spirited fight in Congress over spending priorities.
"The president's budget slashes resources for exactly the priorities we should be supporting _ groundbreaking medical research, health care for our seniors, and education for our kids," said Sen. Tom Harkin, D-Iowa.
Bush Seeking to Limit Spending Growth in 2007 Budget
January 10th 2006 - President George W. Bush is preparing a budget request for next year that officials say would carve savings from programs such as Medicare, NASA and agriculture, testing lawmakers' pledges to hold down spending in an election year.
Administration and congressional officials say Bush will propose more cuts in so-called entitlement programs as well as discretionary spending in fiscal year 2007, which begins Oct. 1, to hold down budget growth as the deficit swells with the cost of hurricane relief, the war in Iraq and subsidizing prescription drugs for senior citizens.
``Clearly, the rate of growth is going to be below the rate of inflation'' except for defense and homeland security, Senate Budget Committee Chairman Judd Gregg, a New Hampshire Republican, said in an interview.
The president may face resistance from Congress on cuts to entitlements, which cover broad categories of federal spending including crop subsidies, food stamps and health care for the elderly. Every seat in the House and one-third of those in the Senate is up for election in November and many of the programs have vocal constituencies, such as farmers and senior citizens.
``Policy is going to butt heads with politics this year,'' said Bill Hoagland, a budget analyst for Senate Majority Leader Bill Frist, Republican of Tennessee. Cuts in Medicare or other entitlement programs ``aren't politically saleable.''
`Sacrifices'
The budget ``is going to call for sacrifices, no doubt about it,'' Treasury Secretary John Snow said today in Washington. ``The growth rate of things will be slowed. There will be some outright reductions.''
Snow declined to be more specific, and Scott Milburn, a spokesman for the Office of Management and Budget, wouldn't comment on possible spending cuts.
Bush submits his fiscal 2007 budget to Congress on Feb. 6. It likely will total about $2.7 trillion, based on Congressional Budget Office projections. The president previewed some of his plans in recent addresses.
Entitlement programs -- those which pay benefits to whoever qualifies under the law -- are growing faster than the country's ability to pay for them, Bush said in Chicago Jan. 6. The next day, in his weekly radio address, the president said, ``We do not need to cut entitlements, but we do need to slow their growth.''
Proportional Savings
Gregg said he supports to push for holding down entitlement spending, which amounted to about $1.3 trillion in fiscal 2005. Medicare, Medicaid and Social Security account for about 60 percent of the federal budget, he said, so they should account for 60 percent of budget savings.
``Future restraint should be in proportion to spending,'' he said.
Bush's budget proposal may seek trims in Medicare by cutting doctor reimbursement rates, a Senate Republican aide said, speaking on condition of anonymity. Winning approval in Congress may be difficult. Senate Republicans needed Vice President Dick Cheney in December to cast a tie-breaking vote to approve $39.7 billion in cuts to benefit programs.
Opposition
The reductions were opposed by Democrats and some Republicans such as Senator Olympia Snowe of Maine.
``She wouldn't want the beneficiaries to bear the brunt of cuts,'' in any new proposal affecting Medicare or Medicaid, said Preston Hartman, Snowe's spokesman. Snowe would also object to any cuts to food stamps, he said.
Gregg said White House budget director Joshua Bolten also will propose reducing or eliminating more low-priority or poorly performing programs. Last year Congress agreed to reduce or end 89 of 154 programs proposed for cutting by Bolten for a savings of $6.5 billion, according to the White House.
``Yes, there's no question'' that such programs will be targeted again, said Gregg, who has made deficit reduction one of his priorities. Gregg, who said he has conferred with Bolten in recent weeks, declined to give details.
Farmers and environmentalists should expect a further tightening of the Agriculture Department's budget. There's an effort to slash spending in everything from crop subsidies to crop insurance to conservation programs, said an administration official involved in the budget process who spoke on condition of anonymity.
NASA Supporters
The budget office also aims to reduce spending on the Space Shuttle program, slicing as much as $6 billion from the projected cost of almost $70 billion in the next four years.
Illustrating the resistance to budget cuts, members of Congress from Texas and Florida, where two of NASA's largest facilities are located, are seeking to head off trims. Republicans including former Majority Leader Tom DeLay and Senator Kay Bailey Hutchinson have written to Bush or spoken with Bolten in the past few weeks. DeLay also has lobbied Vice President Dick Cheney, according to DeLay spokesman Ben Porritt.
A reduction of as much $6 billion ``would mean the immediate retirement of the Shuttle Atlantis and a cut of the needed 19 Shuttle missions to between eight and 11 through fiscal 2010,'' a letter signed by 36 lawmakers said.
The cuts will be proposed as a new raft of spending swells the deficit. Congress has already approved about $62 billion in aid and reconstruction funds, mostly for Hurricanes Katrina and Rita. The new prescription drug benefit under Medicare is estimated to cost $724 billion over 10 years, with as much as $40 billion this year, depending on signup levels.
Iraq Costs
The White House also will request an extra $50 billion to $80 billion for the war in Iraq, and there will be pressure to provide subsidies for heating costs for low-income households, according to the Senate aide.
In addition, congressional efforts to overhaul the alternative minimum tax to prevent more than 15 million taxpayers from paying higher taxes because of inflation would mean the loss of more than $30 billion in revenue.
As a result, the average estimate of five Wall Street economists is for a fiscal 2006 deficit to swell to about $365 billion, falling to $357 billion in fiscal 2007.
The president, in Chicago last week, maintained his pledge to cut the deficit in half to $260.5 billion by 2009. Some budget experts say that's a stretch.
``They're not going to get there by nibbling around the edges,'' said Brian Riedl, budget analyst at the Heritage Foundation, a conservative think tank in Washington that typically supports Republican presidents. ``It's going to take serious reform to reach that goal.''
Deficits
The deficit shrank to $319 billion in 2005, 2.6 percent of the gross domestic product, from a record $413 billion the year before. It was the first decline since Bush took office.
Hoagland, the budget analyst for Frist, predicts this year's deficit will climb to about $370 billion, or around 2.8 percent of the gross domestic product, and decline in fiscal 2007 to about $350 billion, or 2.6 percent of GDP.
Gregg said the deficit goal will be in reach as spending on Iraq and disaster relief lessens in future years.
``Once you curtail spending on Katrina and Iraq, you've really put some glide-path mechanism in'' for reduced spending, Gregg said.
Administration and congressional officials say Bush will propose more cuts in so-called entitlement programs as well as discretionary spending in fiscal year 2007, which begins Oct. 1, to hold down budget growth as the deficit swells with the cost of hurricane relief, the war in Iraq and subsidizing prescription drugs for senior citizens.
``Clearly, the rate of growth is going to be below the rate of inflation'' except for defense and homeland security, Senate Budget Committee Chairman Judd Gregg, a New Hampshire Republican, said in an interview.
The president may face resistance from Congress on cuts to entitlements, which cover broad categories of federal spending including crop subsidies, food stamps and health care for the elderly. Every seat in the House and one-third of those in the Senate is up for election in November and many of the programs have vocal constituencies, such as farmers and senior citizens.
``Policy is going to butt heads with politics this year,'' said Bill Hoagland, a budget analyst for Senate Majority Leader Bill Frist, Republican of Tennessee. Cuts in Medicare or other entitlement programs ``aren't politically saleable.''
`Sacrifices'
The budget ``is going to call for sacrifices, no doubt about it,'' Treasury Secretary John Snow said today in Washington. ``The growth rate of things will be slowed. There will be some outright reductions.''
Snow declined to be more specific, and Scott Milburn, a spokesman for the Office of Management and Budget, wouldn't comment on possible spending cuts.
Bush submits his fiscal 2007 budget to Congress on Feb. 6. It likely will total about $2.7 trillion, based on Congressional Budget Office projections. The president previewed some of his plans in recent addresses.
Entitlement programs -- those which pay benefits to whoever qualifies under the law -- are growing faster than the country's ability to pay for them, Bush said in Chicago Jan. 6. The next day, in his weekly radio address, the president said, ``We do not need to cut entitlements, but we do need to slow their growth.''
Proportional Savings
Gregg said he supports to push for holding down entitlement spending, which amounted to about $1.3 trillion in fiscal 2005. Medicare, Medicaid and Social Security account for about 60 percent of the federal budget, he said, so they should account for 60 percent of budget savings.
``Future restraint should be in proportion to spending,'' he said.
Bush's budget proposal may seek trims in Medicare by cutting doctor reimbursement rates, a Senate Republican aide said, speaking on condition of anonymity. Winning approval in Congress may be difficult. Senate Republicans needed Vice President Dick Cheney in December to cast a tie-breaking vote to approve $39.7 billion in cuts to benefit programs.
Opposition
The reductions were opposed by Democrats and some Republicans such as Senator Olympia Snowe of Maine.
``She wouldn't want the beneficiaries to bear the brunt of cuts,'' in any new proposal affecting Medicare or Medicaid, said Preston Hartman, Snowe's spokesman. Snowe would also object to any cuts to food stamps, he said.
Gregg said White House budget director Joshua Bolten also will propose reducing or eliminating more low-priority or poorly performing programs. Last year Congress agreed to reduce or end 89 of 154 programs proposed for cutting by Bolten for a savings of $6.5 billion, according to the White House.
``Yes, there's no question'' that such programs will be targeted again, said Gregg, who has made deficit reduction one of his priorities. Gregg, who said he has conferred with Bolten in recent weeks, declined to give details.
Farmers and environmentalists should expect a further tightening of the Agriculture Department's budget. There's an effort to slash spending in everything from crop subsidies to crop insurance to conservation programs, said an administration official involved in the budget process who spoke on condition of anonymity.
NASA Supporters
The budget office also aims to reduce spending on the Space Shuttle program, slicing as much as $6 billion from the projected cost of almost $70 billion in the next four years.
Illustrating the resistance to budget cuts, members of Congress from Texas and Florida, where two of NASA's largest facilities are located, are seeking to head off trims. Republicans including former Majority Leader Tom DeLay and Senator Kay Bailey Hutchinson have written to Bush or spoken with Bolten in the past few weeks. DeLay also has lobbied Vice President Dick Cheney, according to DeLay spokesman Ben Porritt.
A reduction of as much $6 billion ``would mean the immediate retirement of the Shuttle Atlantis and a cut of the needed 19 Shuttle missions to between eight and 11 through fiscal 2010,'' a letter signed by 36 lawmakers said.
The cuts will be proposed as a new raft of spending swells the deficit. Congress has already approved about $62 billion in aid and reconstruction funds, mostly for Hurricanes Katrina and Rita. The new prescription drug benefit under Medicare is estimated to cost $724 billion over 10 years, with as much as $40 billion this year, depending on signup levels.
Iraq Costs
The White House also will request an extra $50 billion to $80 billion for the war in Iraq, and there will be pressure to provide subsidies for heating costs for low-income households, according to the Senate aide.
In addition, congressional efforts to overhaul the alternative minimum tax to prevent more than 15 million taxpayers from paying higher taxes because of inflation would mean the loss of more than $30 billion in revenue.
As a result, the average estimate of five Wall Street economists is for a fiscal 2006 deficit to swell to about $365 billion, falling to $357 billion in fiscal 2007.
The president, in Chicago last week, maintained his pledge to cut the deficit in half to $260.5 billion by 2009. Some budget experts say that's a stretch.
``They're not going to get there by nibbling around the edges,'' said Brian Riedl, budget analyst at the Heritage Foundation, a conservative think tank in Washington that typically supports Republican presidents. ``It's going to take serious reform to reach that goal.''
Deficits
The deficit shrank to $319 billion in 2005, 2.6 percent of the gross domestic product, from a record $413 billion the year before. It was the first decline since Bush took office.
Hoagland, the budget analyst for Frist, predicts this year's deficit will climb to about $370 billion, or around 2.8 percent of the gross domestic product, and decline in fiscal 2007 to about $350 billion, or 2.6 percent of GDP.
Gregg said the deficit goal will be in reach as spending on Iraq and disaster relief lessens in future years.
``Once you curtail spending on Katrina and Iraq, you've really put some glide-path mechanism in'' for reduced spending, Gregg said.
U.S. hovers close to its debt ceiling
January 8th 2006 - If consumers are overextended with credit, they're not alone. The U.S. government is poised to exceed its charge card limit and may have to quit paying its bills unless Congress raises the national debt limit soon.
That's what Treasury Secretary John Snow said in a recent letter to Congress, warning that unless the current $8.2 trillion debt ceiling is raised by mid-March, "we will be unable to continue to finance government operations."
In the last 50 years, the United States has raised its debt ceiling more than 70 times, and budget watchers say lawmakers have become expert at delaying or disguising this politically perilous task.
"The antics they go through are incredible, and they've gotten worse,'' said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget in Washington, D.C.
For instance, in his Dec. 29 letter, Snow said that while the debt limit "will be reached in mid-February 2006," he could delay default for a month using "available prudent and legal actions."
These actions, MacGuineas said, would include putting IOUs instead of cash into federal retirement accounts -- a tactic that Clinton administration Treasury Secretary Robert Rubin first employed in 1996, when Republican lawmakers balked at raising a debt ceiling then at $4.9 trillion.
Back then, some lawmakers in the Republican-controlled House of Representatives called for Rubin's impeachment, saying his action usurped the powers of Congress. But in 2002, when the Bush administration was about to hit the $5.95 trillion debt limit it inherited from President Bill Clinton, then-Treasury Secretary Paul O'Neill employed Rubin's tactic to buy time until Congress raised the debt ceiling to $6.4 trillion in June.
Alas, that limit lasted just 11 months. In May 2003, Congress authorized borrowing of $7.4 trillion. In November 2004, lawmakers upped the credit ante to $8.184 trillion. Now, Snow says the limit must be raised yet again to protect "the 'full faith and credit' of the United States."
Late last year, the Republican-controlled House of Representatives wrote a $781 billion increase in the debt ceiling into its budget. The Senate, also controlled by Republicans, has yet to act.
The federal debt is so mind-boggling it's no wonder lawmakers would rather not think about it. In per capita terms, the current debt is about $27,000 for each of 298 million Americans.
But economists tend to look at the national debt as a percentage of the gross domestic product -- the sum total of all goods and services. This links the debt level to the nation's ability to pay and factors out inflation over time.
By this measure, the national debt has ebbed and flowed with world and political currents. According to historical tables in the 2006 federal budget, debt peaked at 121.7 percent of GDP in 1946 because of World War II spending. It fell to about 33 percent of GDP in 1980, then roughly doubled to the 60 percent range during the administrations of President Ronald Reagan and the first President George Bush.
After hitting 67.3 percent of GDP in 1996, a few rare budget surpluses during the Clinton era drove the national debt back down to about 57 percent in 2001.
Debt as a percentage of GDP turned up again as the Bush administration began running deficits and now stands at an estimated 65.7 percent of GDP. The 2006 budget forecast predicts that the national debt will be 70 percent of GDP in 2010.
Nonpartisan budget watchers say the current debt load isn't the problem. They worry about what happens after 2010, when retiring Baby Boomers begin placing demands on Social Security and Medicare.
"It's not where we are. It's the trajectory we're on,'' said Douglas Holtz-Eakin, who just stepped down as head of the Congressional Budget Office, the nonpartisan research arm of Congress.
As his last official act, Holtz-Eakin sent Congress six scenarios that look at federal spending and debt through 2050. All six assume that Social Security benefits will be paid as required by current law. The differences lie in how much inflation occurs in Medicare and Medicaid; higher or lower levels of taxation; and whether, or how deeply, Congress curbs spending on defense and other programs.
The scenario that follows current trends leads to an eye-popping national debt of 449 percent of GDP in 2050. Seen another way, in this business-as-usual scenario, it would cost 21.4 percent of GDP to pay just the interest on the federal debt in 2050. In 2005, the comparable figure was 1.5 percent.
Other scenarios make what Holtz-Eakin calls the "miraculous" assumption that medical cost inflation will fall below current levels, or count on politically tough choices to raise taxes or cut many spending programs.
"There is no single lever one can pull to bring the spending level into balance,'' he said.
Brookings Institution economist Alice Rivlin was founding director of the Congressional Budget Office in 1975 and was vice chair of the Federal Reserve Board in the late 1990s. She agreed with Holtz-Eakin that the current debt load isn't really the problem.
"The scary part is that there doesn't seem to be any prospects for getting the deficit under control,'' Rivlin said, adding that in this light, "raising the debt ceiling is a sort of red flag that says, 'You've got a real problem here.' "
But political leaders have become adept at keeping that red flag from attracting too much attention. When Snow wrote Congress before the new year, there were few on Capitol Hill to read his letter or the retort by Rep. James Spratt, D-S.C., the ranking Democrat on the House Budget Committee, who blamed the Republican-run White House and Congress for "a 50 percent increase in the statutory debt, all accumulated on the Bush administration's watch."
Budget watcher MacGuineas said the ceiling must be raised. To do otherwise would cause a financial crisis. But it will be done as quietly as possible, to avoid discussion of the tough choices that must ultimately be made.
"What bothers me most is the generational aspect," she said. "We are leaving an economy with huge debt, huge promises. And it's only going to get worse."
That's what Treasury Secretary John Snow said in a recent letter to Congress, warning that unless the current $8.2 trillion debt ceiling is raised by mid-March, "we will be unable to continue to finance government operations."
In the last 50 years, the United States has raised its debt ceiling more than 70 times, and budget watchers say lawmakers have become expert at delaying or disguising this politically perilous task.
"The antics they go through are incredible, and they've gotten worse,'' said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget in Washington, D.C.
For instance, in his Dec. 29 letter, Snow said that while the debt limit "will be reached in mid-February 2006," he could delay default for a month using "available prudent and legal actions."
These actions, MacGuineas said, would include putting IOUs instead of cash into federal retirement accounts -- a tactic that Clinton administration Treasury Secretary Robert Rubin first employed in 1996, when Republican lawmakers balked at raising a debt ceiling then at $4.9 trillion.
Back then, some lawmakers in the Republican-controlled House of Representatives called for Rubin's impeachment, saying his action usurped the powers of Congress. But in 2002, when the Bush administration was about to hit the $5.95 trillion debt limit it inherited from President Bill Clinton, then-Treasury Secretary Paul O'Neill employed Rubin's tactic to buy time until Congress raised the debt ceiling to $6.4 trillion in June.
Alas, that limit lasted just 11 months. In May 2003, Congress authorized borrowing of $7.4 trillion. In November 2004, lawmakers upped the credit ante to $8.184 trillion. Now, Snow says the limit must be raised yet again to protect "the 'full faith and credit' of the United States."
Late last year, the Republican-controlled House of Representatives wrote a $781 billion increase in the debt ceiling into its budget. The Senate, also controlled by Republicans, has yet to act.
The federal debt is so mind-boggling it's no wonder lawmakers would rather not think about it. In per capita terms, the current debt is about $27,000 for each of 298 million Americans.
But economists tend to look at the national debt as a percentage of the gross domestic product -- the sum total of all goods and services. This links the debt level to the nation's ability to pay and factors out inflation over time.
By this measure, the national debt has ebbed and flowed with world and political currents. According to historical tables in the 2006 federal budget, debt peaked at 121.7 percent of GDP in 1946 because of World War II spending. It fell to about 33 percent of GDP in 1980, then roughly doubled to the 60 percent range during the administrations of President Ronald Reagan and the first President George Bush.
After hitting 67.3 percent of GDP in 1996, a few rare budget surpluses during the Clinton era drove the national debt back down to about 57 percent in 2001.
Debt as a percentage of GDP turned up again as the Bush administration began running deficits and now stands at an estimated 65.7 percent of GDP. The 2006 budget forecast predicts that the national debt will be 70 percent of GDP in 2010.
Nonpartisan budget watchers say the current debt load isn't the problem. They worry about what happens after 2010, when retiring Baby Boomers begin placing demands on Social Security and Medicare.
"It's not where we are. It's the trajectory we're on,'' said Douglas Holtz-Eakin, who just stepped down as head of the Congressional Budget Office, the nonpartisan research arm of Congress.
As his last official act, Holtz-Eakin sent Congress six scenarios that look at federal spending and debt through 2050. All six assume that Social Security benefits will be paid as required by current law. The differences lie in how much inflation occurs in Medicare and Medicaid; higher or lower levels of taxation; and whether, or how deeply, Congress curbs spending on defense and other programs.
The scenario that follows current trends leads to an eye-popping national debt of 449 percent of GDP in 2050. Seen another way, in this business-as-usual scenario, it would cost 21.4 percent of GDP to pay just the interest on the federal debt in 2050. In 2005, the comparable figure was 1.5 percent.
Other scenarios make what Holtz-Eakin calls the "miraculous" assumption that medical cost inflation will fall below current levels, or count on politically tough choices to raise taxes or cut many spending programs.
"There is no single lever one can pull to bring the spending level into balance,'' he said.
Brookings Institution economist Alice Rivlin was founding director of the Congressional Budget Office in 1975 and was vice chair of the Federal Reserve Board in the late 1990s. She agreed with Holtz-Eakin that the current debt load isn't really the problem.
"The scary part is that there doesn't seem to be any prospects for getting the deficit under control,'' Rivlin said, adding that in this light, "raising the debt ceiling is a sort of red flag that says, 'You've got a real problem here.' "
But political leaders have become adept at keeping that red flag from attracting too much attention. When Snow wrote Congress before the new year, there were few on Capitol Hill to read his letter or the retort by Rep. James Spratt, D-S.C., the ranking Democrat on the House Budget Committee, who blamed the Republican-run White House and Congress for "a 50 percent increase in the statutory debt, all accumulated on the Bush administration's watch."
Budget watcher MacGuineas said the ceiling must be raised. To do otherwise would cause a financial crisis. But it will be done as quietly as possible, to avoid discussion of the tough choices that must ultimately be made.
"What bothers me most is the generational aspect," she said. "We are leaving an economy with huge debt, huge promises. And it's only going to get worse."
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