Rising Red Ink Won’t Curb Federal Spending

Worries about Washington's soaring deficit have been set aside in the rush to pump money into the stalled economy.

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

December 24, 2008

What a difference a recession makes, at least as far as concern over the deficit goes. With lawmakers, governors and lobbyists of all stripes fighting for a piece of what is likely to be a huge stimulus early next year, worry about skyrocketing deficits is definitely taking a backseat. Most deficit hawks are holding their tongues, and those who aren’t are being drowned out by the mass of economists and officials who say that growing the economy must come first and that this will help reduce the red ink in the long run by bringing in more tax revenue.

Congress is readying a stimulus plan that will exceed $500 billion, with some suggesting it could go to twice that amount. It will include more than $100 billion for road and bridge work and surface transportation projects, plus $15 billion a year in green technology investment and untold billions for school repairs, classroom computers and infrastructure to bring broadband Internet to rural areas. There’ll also be help for states to pay rising Medicaid costs, replenish funds for social services plus a middle-class tax reduction. And that’s on top of the $700-billion debt rescue plan already approved, though not all spent.

With so much money at stake, it’s no wonder that lobbyists are swarming all over Capitol Hill. Lobbyists reportedly want $10 billion for intercity rail and $4 billion for airports and avionics equipment. Hospitals want money for modernization. Libraries want some direct aid, saying they can help people locate and learn about jobs. Pipeline manufacturers want loan guarantees added for building ethanol pipelines across several states.

The travel industry has even dispatched lobbyists to win several million for marketing campaigns to promote tourism to the United States. Air-conditioning manufacturers are angling for some tax breaks. One lobby group is working for inclusion of funding to build more walking and bicycle paths, and another group is looking for an injection of aid for upkeep and improvements at public parks. Even the catfish industry wants $50 million to prop up business, which it says has been devastated by high fish food prices, adding that several thousand jobs have been put at risk.

At the end of all the number crunching, the deficit will probably top $1.5 trillion for fiscal 2009, enough to push the national debt to fully $12 trillion. Figure on another huge deficit in 2010. Even some serious scalpel work on regular domestic spending and defense programs won’t make more than a dent in the deficit. Only a strong economic recovery and the tax receipts it would produce will have a true impact.

Obama agrees that a large spending injection is needed, but he has vowed to limit pork and other add-ons that may be little more than pet projects slipped into the stimulus bill or later into regular appropriations bills. He’s pledged to target funds only to projects that will create jobs relatively quickly and that can be started within the next two years.

That’s easier said than done. Washington is already crawling with lobbyists representing a huge range of industries and causes. Plus lawmakers will fight vigorously to save pet projects, and Obama needs their support. Some pork may be stripped, but an antipork crusade will go only so far, especially if it threatens to slow the stimulus momentum that will mark the outset of the new Congress.

Some say Obama should also seize the moment to tackle entitlements right off the bat, such as tying a stimulus to Social Security changes that everyone knows are needed or adding a Medicare financing fix to the economic rescue package. There’s a lot to be said for that, especially with a stimulus carrying a “must pass” label. But don’t count on many in Congress agreeing. That will simply prove too much to tackle, too controversial and too complicated.

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