Budget Update -- Stumbling to the Finish Line

Although being a budget watchdog generally requires a healthy dose of skepticism, recent months have provided reasons for cautious optimism. The sticker shock associated with the costs of responding to Hurricane Katrina on top of large structural deficits appears to have made the nation’s fiscal health a higher priority for policymakers and the public.

After four years of tax cuts and spending increases enacted with little concern for their budgetary impact, talk of budget offsets has returned to the legislative process. Congress is on the verge of enacting greater spending cuts than the budget resolution required, while it deferred completing action on tax cuts before adjourning.

In addition to Congress nearing completion of the first deficit reduction reconciliation bill in eight years, various proposals have been put forward by members of Congress and others outside Congress for even greater savings. At the same time, the prospects of further tax cuts are in doubt as members who have supported tax cuts in the past question whether the federal government can continue to reduce revenue in light of our fiscal situation. Meanwhile, it now appears that the costs of responding to Hurricane Katrina will be less than the original estimates of $200 billion.

To be sure, there remains considerable pressure for additional tax cuts and increased spending, and the costs of tax cuts and spending increases on the legislative agenda when Congress returns next month exceed the modest deficit reduction efforts that have been made. The calls for austerity to pay for the costs of hurricane relief would have greater credibility if this principle were applied to other areas of the budget as well. But at least the inevitable political pressure for tax cuts and spending increases is being counterbalanced by a concern about the deficit. We are hopeful that the increased attention that the deficit has received in recent weeks represents a shift in the public discourse that will lead to serious deficit reduction efforts in the near future.

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