White House Seeks To Raise Nation's Debt Ceiling

by Mike Godfrey, Tax-News.com, Washington

05 December 2001

In the clearest possible demonstration that the days of surplus-financed tax cuts are definitively over, the US Administration is seeking to raise the nation's debt ceiling. Democrats say there is no hurry, with the national debt is about $200 billion below the debt ceiling of $5.95 trillion, but the White House is pressing for early action, apparently to avoid the debt ceiling becoming an issue in congressional races next year.

"The chickens are coming home to roost," said Thomas Kahn, Democratic staff director of the House Budget Committee. "For months, they had told us we could have it all. But their numbers are not adding up."

Treasury spokeswoman Michele Davis said that since the mid-session budget review in August prospects for the public finances had worsened noticeably. At that time the administration projected the debt ceiling would be breached in September 2003. "Now it looks like we will reach it in March 2002," she said. "Look at what is different from August to November. It is the declining economy combined with the attacks in September." Davis said the administration was seeking action before lawmakers depart for the holidays.

Meanwhile the Administration continues to press for further tax cuts, saying that they will help boost growth later in the decade, and remain an essential part of the president's economic strategy. But Congress is gridlocked on the issue, and even master fixer John Breaux, the smooth-talking Democratic senator from Louisiana who was instrumental in delivering the compromise $1,350bn tax cut for the President last spring admits that there are problems. Mr Breaux, who is one of the most conservative Democrats in the Senate, is having little success. "It's a glacial pace," he conceded recently. "We need to put some heat on the glacier."

Mr Breaux's influence in the first tax-cut round was based on the Republicans' control of the Senate: he was able to carve out a middle ground between the extremes in both parties. Today, his role as a broker has been eclipsed by the strong and determined leadership of Tom Daschle, the Senate majority leader. Mr Daschle and other senior Democrats are in no hurry to rush into a compromise with Republicans, and have made it clear they have no intention of supporting most of the tax cuts the White House favours.

Democrats point to last week's confirmation by Mitch Daniels, White House budget director, that after four consecutive annual surpluses, deficits are back and can be expected to remain for at least the next three years. "We are unlikely to return to balance in the federal accounts before possibly fiscal 2005," Mr Daniels conceded. He added: "Now that we know that the economic slowdown that the president sensed a year-plus ago was real. . . one can only say thank goodness for tax cuts that are a major reason why this recession. . . may prove short and shallow."

Democrats are intent on pursuing the political advantage the nation's economic woes have handed them. The party has launched a national ad campaign labelling the economic downtown "George Bush's Recession". Citing recent opinion polls that show the economy beats all other issues - including national security - to top Americans' concerns, Democrats believe they have a winning issue for next year's congressional elections.

It's all a far cry from last February, when the Bush administration predicted a record pay-down of the debt: "The president's budget commits to using today's surpluses to reduce the federal government's publicly held debt so that future generations are not shackled with the responsibility of paying for the current generation's overspending," the president's budget document said. "It commits to an historic amount of debt retirement and will retire $2 trillion in debt over the next 10 years."

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