Warnings about the growing federal budget deficit are getting louder. Federal Reserve Chairman Alan Greenspan cautioned Congress recently that the deficit could destabilize the economy. Seven other members of the Fed have publicly warned that tax and spending policies are generating record deficits that could lead to higher long-term interest rates. As President Bush proceeds with his proposals to reform Social Security; to extend permanently tax cuts on income, capital gains, and dividends; and perhaps end the Alternative Minimum Tax, the deficit will grow. The President must get serious on spending cuts if he is to keep control of the budget.
He can start with cutting discretionary spending. The highway and energy bills still pending in Congress are stuffed with tens of billions of dollars worth of pork. Energy companies, awash in profits, certainly don't need help from Washington. President Bush should insist that subsidies and pork be removed or veto the bills. It's time to get tough.
The biggest savings must inevitably come from cutting entitlement spending. By 2040, with most of the boomers in retirement, Social Security will absorb 6.2% of gross domestic product, up from 4.2% this year. Medicare will eat up even more, 7.4%, and Medicaid an additional 2.7% for a total of 10.1% of GDP. Entitlements are where the money is.
The President can begin by reforming his own expensive, ill-designed $1.3 trillion Medicare drug benefit. A smaller, streamlined version that provides help to those who aren't already covered by insurance could save billions. And allowing health institutions that provide drugs to seniors to bargain directly with pharmaceutical companies, as the Veterans Administration does, could save many billions more.
President Bush didn't veto a single spending bill in his first term. He should return to Republican first principles and say "no" to spending profligates in his own party.