The Budget Deficit
THE BUDGET DEFICIT -- (House of Representatives - June 21, 2005)
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Mr. SCOTT of Virginia. Mr. Speaker, I thank the gentleman for yielding to me.
I just want to point out some of the things that he did not mention in his presentation, and using this same chart. Could he explain what PAYGO means?
Mr. SPRATT. Mr. Speaker, PAYGO is shorthand for a rule we adopted in 1991 and helped us achieve the phenomenal fiscal results I just showed the Members, where every year from 1993 to the year 2000, we had a better bottom line and a surplus of $236 billion in the year 2000. PAYGO simply provides that if we want to have a tax cut when we have got a deficit, it has to be deficit neutral. That is to say the tax cut must be offset by a tax increase somewhere else within the Tax Code, or we must go to an entitlement program, which is permanent spending, and cut it enough to offset the loss of revenues. By the same token, if we want to increase or improve a new entitlement, we have to identify a revenue stream or other entitlement cuts to pay for it. It has to be, bottom line, deficit neutral.
Mr. SCOTT of Virginia. And if the gentleman will continue to yield, as a result of that fiscal responsibility and the tough votes that we cast, we were able to eliminate the deficit and go into surplus, a $236 billion surplus.
What we are looking at now is it does not get any better. After we have gotten back into the ditch, it does not get any better.
Could the gentleman explain what this blue line up here is?
Mr. SPRATT. Reclaiming my time, Mr. Speaker, the blue line, believe it or not, is the path the Bush administration plotted when it was trying to sell its initial budget, its tax cuts, its defense increases, to the Congress of the United States. They said even with these policies, this is the budget we foresee. This is the bottom line that we foresee between 2005 and 2011.
Mr. SCOTT of Virginia. And, Mr. Speaker, just a few years later, look at where we are. The President, down in the ditch where we are now, has promised to reduce the deficit 50 percent. First of all, how modest a goal is that from someone who inherited a $5 trillion surplus to say that he is going to clean up half the mess that he has caused? Is that a realistic goal? Is that a fair goal to be judged by?
Mr. SPRATT. Mr. Speaker, reclaiming my time, I do not think, given his budget policies, it is a realistic statement of what is likely to happen. One can call it a goal if they will, but I do not think it is a goal that is likely to be achieved under the policies that are now being furthered by this administration.
Mr. SCOTT of Virginia. Mr. Speaker, in other words, what the gentleman is saying is that he started with a surplus; he is now in a deficit, only promises to eliminate half the deficit; and he probably will not even be able to do that.
Mr. SPRATT. Reclaiming my time, Mr. Speaker, the gentleman is holding a chart there that indicates the likely path that we think the budget will follow if we factor everything into it that is politically realistic: a fix in Social Security, a fix to the alternative minimum tax, and some reasonable provision for maintaining troops in Afghanistan and Iraq after 2005.
Mr. SCOTT of Virginia. Mr. Speaker, if the gentleman will continue to yield, if we run up deficits, we have to pay interest on the national debt. And we had a $5 trillion surplus projected. Now we have over $3 trillion in deficits. The interest that we are going to pay goes up. By 2010, according to this chart, where the interest we were going to pay was going down and the interest we have got to pay is going up, by 2010 the increase in interest is over $230 billion, and that is $230 billion that we are going to have to pay for interest on the national debt going down the drain that we are not going to be able to spend on public broadcasting; NASA Langley Research, in my area, aeronautics research.
We are closing bases. We are only going to save a few billion dollars in base closings, certainly not $230 billion that we are going to have to spend in interest payments. We are closing bases, and the highest estimate I have seen over the course of time is about $40 billion that we may save. $230 billion and growing interest on the national debt. We are cutting back on ship building. We do not have the ship building budget that we ought to have. Cops on the beat being cut. Education programs, Pell grants. Ask somebody who is going to college how much tuition went up: 5, 10, 15 percent. Pell grants are going up 1 percent under this budget.
And it is getting worse before it gets better because, as we look at the interest on the national debt that we are going to be paying going on and the cost of these tax cuts exploding, the gentleman indicated that we only had a 5-year budget, and when we look at the cost of the tax cuts after 5 years, we can see why they did not want to reveal a 10-year budget. But this shows the exploding cost of the tax cuts going out to 2015.
What it does not show is the Social Security trust fund changing from a surplus, going into a deficit in 2018. That is when we have to be best prepared financially to be able to withstand the difference in the $100 billion surplus we are getting out of Social Security going into a growing deficit. And we are going into that change in our worst possible fiscal situation.
Finally, when we put all these tax cut proposals into perspective, we see that the cost of making the tax cuts permanent, about $12 billion is a lot more than the Social Security shortfall. In fact, the tax cuts for the top 1 percent is almost enough to cover the entire Social Security shortfall. So we cannot separate the tax cut policy from the spending priorities that we are going to have to address.
When we talk about public broadcasting, education, ship building, base closings, aeronautics research in my area, cops on the beat, education, this budget includes requirements to cut school lunches and student loans because we are funding tax cuts for the wealthy. There is even one tax cut that is going into effect in the next couple of years, the PEP and Pease, Personal Exemption Phase-out, and the Pease tax, which the President wants to repeal, that is about $10 billion a year when the President finally gets his way to repeal those provisions.
$10 billion a year and 97 percent of that money goes to those making $200,000 or more. Almost half of it goes to about the top one-fifth of 1 percent. Those making $1 million or more, about half of the benefit of that goes to that group, and we are cutting taxes approximately $10 billion a year when it is fully phased in and at the same time cutting school lunches and student loans. How moral a decision is that to make?
So I would thank the gentleman for his answers. And also we have a chart up here saying what the promises were as we went along, as we went into skyrocketing deficits. We were first told that we could do tax cuts without budget deficits and then the next year our budget will run a little deficit, but it will be short term, then our current deficit is not large; and now he is promising maybe to clean up half of it.
When we run up that kind of debt, and the gentleman has a chart right at his feet, who owns the debt and what is the pattern there? Could the gentleman explain that chart?
Mr. SPRATT. Mr. Speaker, reclaiming my time, I said earlier that one reason we do not have the sort of moral outrage in the country about the deficit, that people are concerned about it but they do not quite feel and see it, this is the reason why.
Foreigners have been buying our debt in copious quantities, relieving us of, for now, the outlay that we would have to make, digging out of our own capital and our own savings, they are picking it up, for now. But what this means is that over time, debt means dependence, and we are incurring dependence to our debtors, and this has happened increasingly since the year 2000.
In the year 2000, foreigners held 30 percent of our Federal debt. Today, at least at the end of the last fiscal year, that had risen by 50 percent, almost 50 percent, or 44 percent; almost half of our debt is held today by foreigners, and that is a matter of some concern. It has to be one of the reasons that we do not need to be running persistent, perennial, huge deficits.
Mr. SCOTT of Virginia. Mr. Speaker, I want to thank the gentleman for his leadership. Just one final question. We have complained about how bad a situation we have gotten into, how much work we did to eliminate the deficit, running into surplus. Does the gentleman from South Carolina have a plan to get us back on track?
Mr. SPRATT. We did. We offered it on the House floor this past budget season, and we will put it up again. As my colleagues will see, it involves foregoing some of the tax cuts that the Bush administration has pushed through Congress, primarily for the reason that the projections upon which those tax cuts were based have not been obtained, they have not come about, they are a fraction of what was forecasted and expected.
So, we have to adjust our budget, our taxes, back to fiscal reality. If we do that, by the year 2010, 2012, we are back in the black again. But it is a big decision. It is a big decision. It can be done, and that was one of the purposes of our budget presentation, was to show that it can be done. We can argue about how to do it, but it is certainly feasible.
Mr. SCOTT of Virginia. I thank the gentleman.
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Mr. SCOTT of Virginia. Well, I would just ask the gentleman, we have outlined what some would think would be quite a crisis. If you look at this chart, something happened in 2001: we passed all of those tax cuts. I would just ask the gentleman from South Carolina (Mr. Spratt) if this administration or the majority in Congress has ever expressed any acknowledgment that there is a problem.
Mr. SPRATT. Well, the administration avows its aversion to debt. And yet it keeps tacking debt on top of debt. The deficit in the year 2003 of $378 billion, a record. A deficit the next year of $412 billion, another record. A deficit this year of $350 billion. And they claim to be cutting it in half, but it does not appear that way if you accurately project it.
And then the Bush administration begins it second term with this policy initiative, the first that the President brought forth, namely, to privatize Social Security. In order to privatize Social Security, the Bush administration would allow workers today to take up to a third of their payroll taxes, take them out of the Social Security trust fund account where they accumulate to a surplus, and put them instead into private accounts.
That means a diversion of well over $3 trillion over the next 10 years, or the first 10 years during which that program would be implemented. And here is a depiction in bar graphs of how much additional debt would be stacked on top of the enormous mountain of debt already accumulated if privatization took place as the President proposed it. As you can see by the year 2025, 2028, we would have racked up $4.9 trillion in additional debt on top of even more debt incurred in the ordinary budget of the United States.
So the Bush administration claims that it does not like debt any more than anyone else, but its policies contradict that claim; and the Social Security proposal coming on top of an already out-of-control deficit-ridden budget just leaves one incredulous as to what they say about their fiscal policy.
Mr. SCOTT of Virginia. So in other words, they have not only failed to acknowledge a problem, they are actually, with their policies, making the problem worse?
Mr. SPRATT. This would clearly make the problem worse, probably 100 percent worse over this 20-year period of time
Mr. SCOTT of Virginia. Now, if you did not acknowledge that there is a problem, how likely is it that you will take the very difficult, make the very difficult decisions that we had to make in 1993?
Mr. SPRATT. What we have seen in the 1980s and 1990s in coming to grips with the budget deficit, a compelling problem that nevertheless eluded a solution
for years, is that unless the administration, the President and the leadership of the Congress, is focused upon this problem and there is a driving priority, it simply will not be resolved.
And that is the problem we have today. When we finally put the budget to bed, the deficit to bed, got rid of the remaining deficit in 1997, it was because President Clinton had not only made that his number one priority for his second term, but he put his first team on the field.
Every time we met for negotiations, Frank Raines was there, Bob Ruben was there, Erskine Bowles was there, everyone in the room had the President's proxy and could speak for him; and the participants, the budget principals, knew that the administration was pushing hard.
Unless everybody pulls hard in that same direction, there are too many otherwise outside forces that stray you off course. So you have got to have leadership to get this done. And we do not have that leadership.
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Mr. SCOTT of Virginia. In 1994, there was a change in leadership in Congress. What happened in 1995?
Mr. SPRATT. In 1995?
Mr. SCOTT of Virginia. When the Congress passed budgets that included massive tax cuts, what happened to those budgets?
Mr. SPRATT. Well, in 1995 and in 1996 we had better and better bottom lines because we had a PAYGO rule, and we had discretionary spending caps.
Mr. SCOTT of Virginia. But did President Clinton, when he looked at those irresponsible budgets, not have to veto those budgets, showing Presidential leadership?
Mr. SPRATT. He did indeed. And then we had a point where we could not come to a conclusion on the budget. As a consequence, the whole government was shut down and President Clinton, upon being reelected said, I do not want to go through that again. I would like to see the budget principals get together with the White House budget principals and try to negotiate a deal earlier in the fiscal year, as opposed to near the end of the fiscal year with our backs against the wall.
Mr. SCOTT of Virginia. But the Presidential leadership would not allow an irresponsible budget to become law?
Mr. SPRATT. Absolutely not. And then took the situation by the scruff of the neck the next year and saw to it that we finally brought it to a successful resolution, a phenomenal resolution: a surplus of $236 billion in the year 2000.
On that high point, since we are just about out of time, let me thank the gentleman from Virginia (Mr. Scott), the gentleman from North Carolina (Mr. Price) and the others who participated, about a subject that is of great concern to all of us. We all have this feeling that the day of reckoning awaits us, and we would like to see this done consensually, with good policy.
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