New US Treasury Secretary Defends President's Fiscal Plans

by Mike Godfrey, Tax-News.com, New York

05 February 2003

Just one day after being sworn in as US Treasury Secretary, John Snow found himself at a House Ways and Means Committee hearing on the President's budget, defending the administration's tax-cutting plans, which in the eyes of many will lead to structural deficits for many years to come.

White House Budget Director Mitchell Daniels had said not to 'hyperventilate' over projected budget deficits, but John Snow begged to differ. "Deficits matter," Mr. Snow told the Committee. "If we ever get to the point where the financial markets foresee sizable deficits without fiscal discipline... where deficits are rising as a percentage of GDP, the markets will respond . . . with higher interest rates.' Snow said that the projected deficits were both manageable and unavoidable.

The administration is now forecasting a government budget deficit of $300 billion in the year ending September 30 and in the next fiscal year. After that, it says, deficits will gradually reduce.

Republicans continue to see tax cuts as the way to avoid future deficits, remembering that President Reagan's cuts led to economic boom. Ways and Means Committee Chairman Bill Thomas (Rep, Calif) told the Treasury Secretary that he wanted to put the tax-cut legislation on a fast track, with House passage by the end of March.

To compensate for the proposed tax cuts, the President's budget, released this week, includes severe spending cut-backs in programs for housing, job-training assistance and health-care aid for needy communities. There are also new or higher fees for various recipients of federal services, including visa applicants and higher-income recipients of health care. The budget also attempts to close several tax loopholes. Concurrent proposals to reform savings plans will also help, by accelerating up front tax receipts while deferring tax benefits.

The combined package of tax-cuts, budget belt-tightening and savings proposals amounts to a bet that stimulus now will be rewarded by economic growth (and higher Federal revenues) in the future. Democrats of course say that the risk is unacceptable, and will no doubt be able to trim back some of the proposals during their passage through the two houses of Congress. Republicans lack the votes to force legislation through the Senate without some Democrat assistance which will only come at a price.

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