Knight Ridder Newspapers

WASHINGTON – Faced with a second monstrous hurricane, official Washington is in a fiscal lather that neither the Sept. 11 terrorist attacks, two rounds of tax cuts nor the war in Iraq provoked.

Suddenly, many domestic spending programs, pet pork-barrel projects, even tax increases and, yes, those 2001 and 2003 tax cuts, are all facing a scrutiny unseen over the past five years, as lawmakers from both parties wrestle with potentially record-setting budget deficits.

Republican conservatives, who argued that tax cuts would pay for themselves by increasing economic activity and who conceded that the war in Iraq would have to be financed by borrowing, now say they are eager to find cuts in spending to pay for Hurricane Katrina’s devastation.

With that bill pegged as high as $200 billion, and with Hurricane Rita bearing down on Texas, any effort to offset costs by cutting other spending would require deeply gouging popular programs, would affect all Americans, and would cause considerable political pain in Congress.

“We are in a fiscal crisis in this country if we add another $200 billion to the deficit without trying to ask the American people to share in some of that overall cost,” Sen. Larry Craig, R-Idaho, said this week.

But the deficit is hardly a new apparition.

Lawmakers and the Bush administration have been awash in red ink for four years. Bush entered the White House in 2001 with projections of a huge budget surplus ahead that heralded a new era of fiscal security. But that vision collapsed under the weight of three distinct wallops that struck the budget almost simultaneously: an economy in sharp decline, Bush’s deep 2001 tax cuts ($1.3 trillion over 10 years) and the Sept. 11 terrorist attacks.

Since then, America went to war in Afghanistan and Iraq ($250 billion so far), Congress passed another major tax cut ($350 billion over 10 years) and adopted an expensive prescription drug plan, ($724 billion over 10 years). Meantime spending has continued unabated on highways, farm subsidies and homeland security. Bush hasn’t vetoed a single bill.

Long before Katrina, experts warned of a looming fiscal catastrophe. The Committee for Economic Development, a group of business executives and university presidents, warned two years ago that coming generations of Americans faced a lower standard of living if deficits were not tamed.

In a dire note, this year the group added: “As more U.S. debt is financed by foreign investment, the potential for financial instability increases.”

Indeed, foreign holdings of U.S. debt are at record levels, much of it in the hands of central banks in Japan and China. Some analysts fear that parking such large IOUs abroad could influence foreign policy by making Washington dependent on potential rivals.

Until now, a rebounding economy, low unemployment and rising tax revenues have tempered fear of deficits. But Bush’s declaration that the federal government would spend “whatever it takes” to help the Gulf Coast recover from Katrina caused fiscal conservatives to panic.

Sen. Conrad Burns, R-Mont., a former livestock field man, summed up conservative sentiment this way: “Anything that you do in haste, I don’t care whether you’re feeding cattle or you’re sending money someplace by the bucketful, you’ll spill more on the ground than you’ll get to the trough.”

Twenty House Republicans sent Bush a letter this week noting that in World War II and the Korean War, presidents Franklin Delano Roosevelt and Harry Truman, two Democrats, cut domestic spending dramatically to help finance U.S. military operations.

These Republicans are asking for belt tightening to offset spending in a war against forces of nature.

“We went to war in Afghanistan and then Iraq and decided we should borrow for that,” said Robert Reischauer, president of the Urban Institute and former director of the non-partisan Congressional Budget Office. “In part, for political reasons, had we asked the American public to sacrifice, support for the war would have gone down considerably.”

But a disaster like Katrina is different. The public is sympathetic to its victims and Americans have been willing to sacrifice already by giving generously to charities.

“One might ask, if as individuals we’re willing to do this, why aren’t we willing to do it collectively, either by tightening our belts a bit by reducing spending or increasing taxes,” Reischauer observed.

“The only silver lining in the wake of Katrina is that we may at last see the will of the American people coalescing behind a desire for a leaner and more efficient federal government,” said Rep. Mike Pence, R-Ind.

Pence and several House conservatives this week recommended billions of dollars in budget cuts, including delaying the start of the prescription drug benefit for seniors. But congressional leaders rejected such dramatic reductions. What’s more, they intend to return next month to a favorite theme – more tax cuts.

Democrats believe public opinion is now on their side and that they can halt the GOP drive for further tax reductions.

“For the immediate needs, as you know, they are in the tens of billions of dollars and we should start not by cutting Medicaid for the poorest people in America, but by removing the tax cuts for the wealthiest people in America,” said House Democratic Leader Nancy Pelosi.

(c) 2005, Knight Ridder/Tribune Information Services.

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