The Washington Post
October 17, 2001 Wednesday
SECTION: A SECTION; Pg. A03
LENGTH: 1080 words
HEADLINE: OMB Chief Signals New Spending Goals;
Daniels Says Security Needs Must Come First
BYLINE: Glenn Kessler, Washington Post Staff Writer
The White House signaled last night it will seek a reordering of federal budget priorities, with programs not related to fighting terrorism or enhancing security under scrutiny for reductions or elimination.
Mitchell E. Daniels Jr., the White House budget director, warned that permanent budget deficits may emerge again if lawmakers do not trim back parts of the government not dedicated to the military, law enforcement and intelligence-gathering.
"Many lesser priorities will have to yield while we ensure that the essential functions of government are provided for," Daniels told a business group in New York, according to a draft of the speech released by the White House. "The alternative is to discard discipline totally and imperil our long-term economic health."
While Daniels in an interview declined to specify which programs the administration will target, his comments represent an early shot in a growing debate between the parties over future spending. With the 2002 budget certain to go into deficit for the first time in five years, policymakers face politically unappealing choices -- higher spending and continuing budget deficits, or higher taxes, or deep cuts in nonterrorism-related programs.
The administration supports legislation that seeks to stimulate the economy, though it has pressed for most of the package to be tax cuts. Last night, Daniels appeared to break slightly with the position of the Treasury Department that a proposed repeal of the corporate minimum tax should be permanent. Daniels said the tax cuts should be of "limited duration."
Even temporary tax cuts, such as a three-year break on new business investments supported by the administration, can have long-term consequences if lawmakers come under pressure to repeatedly extend the tax break just before it expires.
Since the summer, the fiscal situation of the country has changed dramatically, largely as a result of the administration-backed tax cut, the slumping economy and emergency spending related to the fallout from the terrorist attacks. Estimates earlier this year suggested the surplus in 2002 would be equal to about 3 percent of the overall size of the economy, and now it appears the country will slip into a small deficit. The fiscal shift is roughly equivalent to deficit growth during the 1974-75 recession.
In an interview, Daniels made it clear the administration was opposed to either higher spending or tax increases. Daniels said he rejected the notion that much of the additional spending in the war on terrorism -- by some estimates as much as $ 50 billion a year -- will need to be added on top of existing commitments. "Everything ought to be held up to scrutiny," he said. "Situations like this can have a clarifying benefit. People who could not identify a low priority or lousy program before may now see the need."
Daniels said the "two new imperatives are fully affordable [but] the real danger is that we will layer it on top of the government we have." He said that "what you don't do in a time of emergency is hold everything else sacrosanct," though he ruled out not implementing portions of the president's tax plan because "we don't want to do anything that hurts long-term growth."
But many Democrats charge the administration's commitment to fiscal discipline is merely a convenient way to slash funding for social and health programs dear to Democrats while pouring dollars into the military and law enforcement agencies that were always slated for big increases under President Bush. They question why everything but the president's desire for more tax cuts needs to be on the table.
Rep. David R. Obey (Wis.), the senior Democrat on the House Appropriations Committee, said that Democrats were not planning to shortchange the war on terrorism. "There will be no difference between Republicans and Democrats on that front," he said. "But Democrats are not going to allow Osama bin Laden to accomplish what Mitch Daniels couldn't do on his own" -- which Obey said included weakening spending on science, health care and other social programs.
Obey said that his office has received memos from a range of federal agencies indicating the White House has been "planning extraordinarily deep cuts in domestic programs in order to finance oversized tax cuts."
Thomas Kahn, Democratic staff director of the House Budget Committee, said that the Bush administration has long sought an increase in military spending. "This administration tends to refashion the facts of the day to adjust whatever policy they had from the beginning," Kahn said.
Senate Majority Leader Thomas A. Daschle (D-S.D.) acknowledged that the ongoing costs of funding the war on terrorism will have consequences for future spending. He said that he was not inclined to seek ways to pay for the emerging stimulus package, and he did not think the time was ripe to reopen the debate about the tax bill that passed in the spring.
But Daschle said it was clear that spending priorities will be shifted in the wake of Sept. 11. "There is no doubt that eventually it [spending to fight terrorism] will have to be offset," he said. "We can't permanently commit to spending that can't be paid for."
The federal government has often grown during wartime, and administration officials are increasingly concerned that the wartime pressures will make it difficult to keep the lid on spending.
Earlier this year, the administration succeeded in passing a tax cut that was expected to reduce the 10-year budget surplus by about $ 1.7 billion, with many of the biggest reductions in revenue coming later in the decade. Although Bush had pledged to keep spending growth in annually funded programs to about 4 percent, in part to avoid depleting the surplus, the administration recently agreed to an increase of nearly 7 percent.
"We must resist pressure to unwisely expand government," the president told senior federal workers on Monday. "We need to affirm a few important principles, that government should be limited, but effective; should do a few things and do them well."
Daniels last night issued a stern warning to lawmakers who he said were making "opportunistic spending sorties masquerading as 'emergency' needs."
"Overnight, a climate of fiscal restraint has been dispelled," he said. "We now face a great risk of runaway spending, the erosion of the long-term surpluses we have been anticipating, and the erection of a much larger permanent federal government."