The Color of Money
On Capitol Hill, forget saving for a rainy day -- It's spend, spend, spend!
It's becoming a yearly ritual: The Medicare and Social Security overseers hold up the red flags. The programs, they cry, are on the cusp of fiscal Armageddon. Medicare's problems, they said this year, will eventually overshadow even those of the Social Security program; in 2018, two years earlier than previously predicted, it'll go bust.
All the attention in the capital, though, is on spending, and spending more. This week, seniors face a deadline to sign up for the prescription drug plan, the largest expansion in the program's history. And for all the talk from Democrats and Republicans about restraining spending and fixing the entitlement programs with the baby boomers about to retire, most on Capitol Hill are more interested this election year in short-term victories: pet projects in their home districts paid for by Washington, and a bill to continue tax cuts through 2010 so that they expire under the next president. "They've been cutting taxes and adding spending," says Robert Bixby, head of the Concord Coalition, a nonpartisan fiscal restraint group. "That's the disconnect. There is just no relationship between spending policy and tax policy."
Last year, President Bush tried to jump-start the process to reform Social Security, lobbying for private retirement accounts. But the issue proved once again to be a third rail for politicians; Bush was quickly defeated. Social Security, the trustees said in their report this year, will become insolvent in 2040, one year earlier than previous forecasts. "It's time to set aside politics," the president said last week, "and restructure Social Security and Medicare."
Bush has sought a bipartisan commission to investigate the pension and healthcare questions facing aging Americans; he's asked Congress to slash $36 billion from Medicare during the next five years, too. Both proposals, though, have won virtually no support in Congress, and Bush has barely mentioned the commission since January. "They kick this down the road for a decade," says Douglas Holtz-Eakin, a former adviser to the president and former head of the Congressional Budget Office. "You can't make it to 2016 without touching it."
Democrats have lambasted the Medicare warnings as Republican scare tactics to press for privatized health insurance. "I'm sure it's the Chicken Little theory," says Rep. Pete Stark, a California Democrat. "If you get people scared enough, they'll do all sorts of things." Most liberals agree, up to a point, that the healthcare system is in dire straits. "The health system is in a crisis," says Jason Furman, a former economic adviser to President Clinton, "but different from a government-entitlement crisis."
Republicans, for their part, have recently rallied around the prescription drug plan, estimated to cost $724 billion over a decade, with leaders holding press conference after press conference touting it. For some conservatives, however, deep concerns persist. "This prescription drug benefit is going to eat us alive," says Rep. Jeff Flake, an Arizona Republican. "It makes you wonder where your party has gone. Thirty million seniors are now more dependent on the government." Adds Sen. Tom Coburn, an Oklahoma Republican: "The Medicare prescription drug bill is a mistake. It's an example of when you let political expediency take over long-term interests."
Flake and Coburn have been scolding earmark-happy lawmakers, too--not that they have much to show for their efforts. The emergency spending bill--passed last week in the Senate, 77 to 21--to finance the wars in Iraq and Afghanistan and the Gulf Coast hurricane recovery proved to be yet another boondoggle. Senators added $17 billion more in spending. Among the pet projects: $700 million to move a railroad track, destroyed by Katrina and since rebuilt; $11 million for erosion control in Sacramento, Calif.; and $6 million to help Hawaiian sugar companies recoup losses from rain damage. "Did we win the battles? No," Coburn says, but he's optimistic that talking about earmarks will raise attention. "We're changing the dynamic. The American public is awake on this and wants to hold us accountable."
Maybe, but the number of earmarks more than tripled between 1994 and 2004, and their price shot up to $53 billion, according to the Congressional Research Service. "The appropriators have reached a level of disdain for others in Congress," says Stuart Butler, a domestic policy expert at the conservative Heritage Foundation. "It's like it's their money."
Veto threats. Now the spending bill is headed for tough negotiations with the House, where the Republican leadership has drawn a line in the sand, saying it won't consider any dollar not related to the projects originally in the bill and an extra $2.3 billion for flu preparations that the president has approved. Last week, Bush made his most direct veto threat yet on the spending bill. "If he doesn't carry through, you might as well just throw the gates wide open to the Treasury," Flake says. "We'll be in the minority in November."
For now, Republicans have some good news to crow about. Tax receipts are on the rise, leading the Treasury and outside economists to slash their deficit estimates this year to around the same level--$320 billion--as last year. But next year will be the fifth consecutive year in the red, and while Bush has said he would trim deficits by 2009, the mounting costs of the war in Iraq paint a grim fiscal picture. The tax cuts, which may come to a vote as early as this week, would expire on the next president's watch, just a few years before the baby boomers retire. "This is the most favorable fiscal decade we'll ever enjoy again in this country," Furman says. "Now is not the time for complacency."
This story appears in the May 15, 2006 print edition of U.S. News & World Report.