Can We Afford State of the Union Proposals?

U.S. Army Cpt. Michael Kofman on patrol in Iraq. Credit: John Moore/Getty Images. i i

U.S. Army Cpt. Michael Kofman from Fairfax, Va., checks a map while patrolling with Iraqi Army forces in Iraq's Anbar province. U.S. operations in Iraq could add $100 billion to government spending. John Moore/Getty Images hide caption

itoggle caption John Moore/Getty Images
U.S. Army Cpt. Michael Kofman on patrol in Iraq. Credit: John Moore/Getty Images.

U.S. Army Cpt. Michael Kofman from Fairfax, Va., checks a map while patrolling with Iraqi Army forces in Iraq's Anbar province. U.S. operations in Iraq could add $100 billion to government spending.

John Moore/Getty Images

There is good news, and bad news, from Washington about the federal budget. The non-partisan Congressional Budget Office released new data Wednesday showing that the government's deficit is shrinking. But the CBO is expecting higher spending — and bigger deficits — in coming years.

Medicare is costing taxpayers billions of dollars less than economists had predicted. But health-care costs are skyrocketing, meaning Medicare expenses are expected to climb. At the same time, the cost of the war in Iraq could add another $100 billion to federal spending in the near term.

The news was delivered by new Congressional Budget Office chief Peter Orszag during a news conference in his offices on Wednesday. The report Orszag released is a projection of the federal budget over the next decade.

Here's the clearest thing he said at the meeting: "Thank you for joining us this morning."

The majority of Orszag's comments sounded like this: "Consistent with the rules governing our baseline, that $172 billion figure does not take into account the likely supplemental appropriations associated with the ongoing activities in the war on terrorism."

Translation: for about 5 years, the United States government has been spending much more money than it's been taking in from taxpayers. That's the deficit. This year it'll still do that, but by a slightly smaller margin than had been predicted.

Instead of running $248 billion in the red, it'll be $172 billion. But that doesn't include new spending on the war in Iraq. President Bush is expected to ask for about another $100 billion to cover U.S. involvement there.

But what concerns Orszag the most is the exploding cost of government health care for the poor and the elderly through the Medicare and Medicaid programs.

"If health care costs continue to grow 2.5 percentage points faster than economic growth, we will face some very severe tradeoffs that will be uncomfortable for policy makers and the public," Orszag said.

Translation: health-care costs are growing so fast that, if nothing changes, by the year 2050 they will consume the entire federal budget. The government's only business would be health care.

This is one issue in Congress where bipartisanship is real. Everyone in both parties agrees that allowing Medicare and Medicaid to grow that fast for that long is untenable. But that's where the agreement ends.

Here's how two opposing lawmakers describe the fix. First, Sen. Kent Conrad (D-ND), chairman of the Senate Budget Committee.

"[We need] either a substantial reduction in the growth of spending, or a significant increase in tax revenues relative to the size of the economy," Conrad said. "Or some combination of spending or revenue changes will be necessary to promote the nation's long-term fiscal stability."

Translation: either cut spending, raise taxes or both.

House budget committee member Mario Diaz-Balart, a Republican from Florida, has a different take on the budget conundrum.

"We should be able to do so without increasing taxes, without cutting benefits, and without hurting a lot of people," Diaz-Balart said. How? "Well, by some common-sense measures. I think the private sector has to have a role to play."

This is the classic modern budget battle between the two parties. Democrats want to tinker with tax rates and government spending to bring the budget into balance. Republicans want to partner with private companies to lessen government responsibilities, and therefore spending.

According to Sen. Conrad, this clash will play out over and over again until both sides commit to the budget process.

"These problems are so big and so serious, the only conceivable way that they are addressed when you have the president of one party [and] congress in control of the other party, is if both sides, and I emphasize both sides, are prepared to give up their fixed positions," Conrad said.

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