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US Senator Gregg Makes Budget Overture To Democrats December 27, 2006

Posted by notapundit in Congress, Politics, US News.

WASHINGTON (Dow Jones)–Sen. Judd Gregg, R-N.H., has an offer for the new Senate Democratic majority: if they will start facing the nation’s long-term fiscal problems, he will help them pass a budget in the near term.

The overture is bound to be an enticing one.

A number of near-term fiscal challenges loom, including fixing the alternative minimum tax and shielding doctors from pending Medicare payment cuts. Likewise, Congress must decide to whether to make good on its promises to fund the No Child Left Behind Act, the Individuals with Disabilities Act and the State Childrens Health Insurance Program.

But those short-term trials pale in comparison to those of the longer term when the demographic landslide that is the retirement of the baby-boom generation will suck the federal budget dry, say lawmakers and policy experts.

And here is where Gregg, who hands over the Senate Budget Committee gavel to Sen. Kent Conrad, D-N.D., in January, has an offer.

“I am willing to be aggressively supportive,” Gregg said of Democrats’ budget-writing efforts for fiscal-year 2008 and beyond.

“But for me to participate in that, we have got to have substantive progress on long-term entitlement reform,” Gregg told Dow Jones Newswires last week.

Gregg has proposed a bipartisan budget commission, the recommendations of which must be acted upon by Congress as one way to approach the problem. But in a telephone interview last week, Gregg said he didn’t care precisely how it was handled.

“We need some sort of mechanism to get us in the room,” Gregg said. “I still believe that procedure drives policy.”

Budget Hawks Say Math is Simple

Gregg isn’t alone in his views. Other budget hawks, including Government Accountability Office head David Walker, say the math is simple.

“The long-term fiscal outlook results from a large and persistent gap between expected revenues and expected spending,” the GAO explained in a recent report.

Just as simple is that the longer Congress and the White House wait to act, “the greater the risk that the eventual changes will be disruptive and destabilizing,” the GAO found.

On average since the end of World War II, the U.S. government has run an annual budget deficit of roughly 1.7% of gross domestic product, according to the Office of Management and Budget.

Revenue swings in the last decade have pushed the annual budget into surplus then to deficits of roughly 3.7% of GDP, and back again to the historical average.

Traditionally, the good news would mean an easing of the tight discretionary limits placed on domestic programs in recent years, but military operations in Iraq and Afghanistan and homeland-security issues are expected to continue consuming any growth in discretionary federal spending.

That means there will be no room for needed spending growth on highways, airports, education, research, tax administration and the like, said Eugene Steuerle, senior fellow at The Urban Institute. And in the long run, those programs – and even defense and homeland security – will get thrown on the fire unless something is done to rein in the growth of entitlement spending.

“The trend in the budget is toward, I think, long-run national decline,” Steuerle said. “It’s the viscous, not the virtuous cycle.”

Different Budget Cycle This Time Around

“I do see this as a very difficult budget cycle,” said Bill Hoagland, top budget aide to retiring Senate Majority Leader Bill Frist, R-Tenn.

And Hoagland agrees that with baby boomers beginning eligibility for full Social Security benefits in 2008 and Medicare in 2011, the bad news will keep coming.

“If people think it is bad now, just wait. It is only going to get worse,” said Hoagland.

The GAO predicts that by 2030, entitlement spending and interest on the debt will more than consume all of the government’s revenues, and annual deficits will exceed 10% of GDP.

“We are in the worst fiscal condition of any time since World War II,” Sen. Conrad told Dow Jones Newswires in an interview last week.

Conrad and other budget experts say Social Security is one of the problems, but far more pressing is Medicare.

While demographics is driving the spending growth for both programs, the unceasingly accelerated growth of health-care costs in the U.S. is supercharging Medicare’s expansion.

So far the bipartisan response from Congress and the White House during Bush’s tenure has been to make the problem worse by adding a prescription drug benefit that will cost the government an extra $50 billion a year by the time it takes full effect, according to Congressional Budget Office estimates.

“We have not been willing to face up to entitlements. We have been kicking the can down the road,” said The Urban Institute’s Steuerle.

Conrad agrees. He also welcomes Gregg’s offer.

“Judd Gregg is a serious person,” Conrad said.

But Conrad thinks the White House can’t just participate in those budget talks, President George W. Bush must take the lead.

“If this president is going to fail to lead…unfortunately not much will happen,” Conrad said.

Most lawmakers are reserving judgment.

Bush has signaled a willingness to compromise his demand for private retirement accounts as part of a Social Security reform plan. But Treasury Secretary Henry Paulson, whom Bush has designated as point man for negotiating such a compromise, may not also have Medicare in his “portfolio,” Hoagland noted.

Jim Horney, senior fellow at the Center on Budget and Policy Priorities, is simply pessimistic.

“In the long run, the only way real serious issues get resolved is (through) some kind of bipartisan approach, and that doesn’t seem terribly likely to happen in the next two years,” Horney said.

By John Godfrey, Dow Jones Newswires


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