President Bush has asked Congress for about $75 billion to begin paying for the war in Iraq and other costs related to it and the war on terrorism. (Some of the money will also pay for U.S. intervention in Colombia’s civil war.) Boy, is he living in a dream world. Congress doesn’t have any money. The current fiscal year’s deficit is projected to be somewhere between $246 billion (the Congressional Budget Office’s estimate) and $304 billion (the Office of Management and Budget’s estimate). Next year’s budget is expected to be at the top end of that range.
So where does a Congress that already can’t pay its bills come up with $75 billion? I suppose all it can do is authorize the president to borrow the money when he needs it. In the meantime the Senate has drastically reduced the size of Bush’s requested tax cut. So, as expected, the second casualty of the war in Iraq (the first casualty being the truth) is consideration for the long-suffering taxpayers. As one of those taxpayers, I can truly say I am not honored to have my money taken first to destroy Iraq and then to reconstruct it.
The tax cut was piddling to begin with. Even if we take the largest estimate of the cut and assume that lowering tax rates does not actually produce more revenues (which it does), it would have “cost” $726 billion. (The cost is to the government itself, which doesn’t have a right to the money in the first place.) That’s the 10-year figure. As someone has pointed out, politicians always use the 10-year figure because it makes a small tax cut sound big. A $73-billion-a-year tax cut doesn’t sound so impressive when you recall that the federal budget is now over $2,000 billion a year. That puts $73 billion into perspective, doesn’t it?
At any rate, the Treasury will have to borrow the war money. The American ethic used to frown on people living beyond their means, borrowing to pay for luxuries they couldn’t afford. But the U.S. government has never lost sleep borrowing to fight wars. It’s a tradition. So we’ll do it again this time. Unfortunately, we are already starting out with a large deficit — and that hurts, since it seemed like only yesterday that we were celebrating the first budget surpluses we’d seen in many years. Was it a dream?
There was also a brief time in the late 1980s and early 1990s when budget deficits had the blessed effect of chilling the government’s ability to spend money. But that effect is gone. Deficits today are no barrier to spending money — especially money for war, the cost of which will know no bounds. Even Bush’s domestic spending rivals his predecessors’.
There are many myths about government deficits. For example, it is said, usually by the party out of power, that deficits push up interest rates. The record says otherwise. In the past, foreign investors have been able and willing to send capital here to counteract the government’s upward pressure on interest rates. Maybe that will happen this time too. Or maybe the recession will keep rates low.
Regardless of what happens with interest rates, deficits are hardly benign. When the government borrows money, it diverts scarce capital from projects intended to satisfy consumers to projects intended to satisfy politicians. The never-produced products that we consumers are deprived of are the real cost of the borrowing. In this case, we’ll get bombs with which to destroy Iraqi buildings rather than new and better goods and services. And some of the money will go to politically connected corporations to build new Iraqi buildings rather than to creating things that will make us healthier or more comfortable.
Frankly, I don’t think that’s a good trade. But no one asked me. I’m just a taxpayer. Mere taxpayers, fixed as we are on our own narrow self-interest, can’t be allowed to obstruct the New World Order being created by the Bush administration. But don’t worry — lower taxes are in our future. Right after we reform Iraq, then Iran, Syria, Libya, Saudi Arabia, North Korea, and the rest of the unruly rogue nations.