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How Can Politicians Vote For Tax Cuts When There's A $6.7 Trillion Deficit?
10.12.2004 1:45 PM EDT

WASHINGTON — Reality bites. Especially when it comes to the deficit.

It was a scene tailor-made for another one of those "flip-flop" ads. On September 13, members of the Democratic Caucus of the House Budget Committee rolled out a new report — "Reality Bites: Why Younger Generations Should Be Concerned About the Deficit" — which voiced serious concerns about the effects the Bush Administration's hefty tax cuts will have on the under-30 crowd. Ten days later, many of those same Congressmen and -women voted in favor of those very tax cuts. But far from a simple flip-flop, this incident gives a bit of insight into the difficult political world of taxes, government spending, deficits and debt.

Understanding the interconnectedness of those elements may seem easy at first blush. The government taxes citizens to raise the money for the military, AIDS relief, public schools and a million other things. When they don't get enough money, they either have to raise taxes or cut spending, otherwise they end up with a deficit. If those deficits go uncorrected, they become debt. Simple enough.

Well, of course it's not that easy — nothing ever is when politics are involved. Any lawmaker who votes against middle-class tax cuts in an election year will lose their job. The same goes for anyone who votes to cut government spending; those votes later become the "You voted against Meals-on-Wheels" lines that hand a politico a one-way ticket out of Washington. Because voting against spending cuts and tax cuts are politically difficult, we usually end up with the logical outcome: deficits.

This year, the deficit will weigh in at $422 billion, according to the Congressional Budget Office. That number doesn't count the federal debt, which comprises everything the country owes from years gone by. That number is $6.7 trillion and is expected to double in 10 years.

Of course, the same rules that apply to a car or college loan also apply to these loans. Just as college graduates pay interest on their student loans, so too does Uncle Sam. The interest alone on the current federal debt totaled $159 billion in 2004: That's more than double the amount the government was able to spend on financial aid in the same year.

So how did we get here, when the Clinton administration left Washington with a $230 billion surplus? A number of ways. Analysts concede that the dot-com-powered economy, which had been booming in late '90s, began to boom a lot less by 2000 (the more people make, the more Uncle Sam collects in taxes), leaving George W. Bush with a drowsy economy (the less people make, the less taxes are collected). President Bush then made good on a campaign promise and pushed through tax cuts in early 2001, further decreasing the government's take. And to top it all off, by the end of that year the country had a major new expense: war.

Grover Norquist, president of Americans for Tax Reform (ATR), a group that favors the new tax cuts, says we shouldn't be worried about deficits. "Stimulate the economy through tax cuts and reduce the size of the government," he said, "and you will see those deficits dwindle." At the end of the day, Norquist's theory goes, it's not the deficit that matters; it's the rate of economic growth. The more the economy grows, the more taxes will be collected.

Yet some researchers don't agree. Henry J. Aaron, a senior fellow at the Brookings Institution, believes that deficits erode growth, divert savings into current consumption needs and drive up interest rates. "We pay indirectly for these tax cuts when we try to buy a house, a car or pay off a credit card," Aaron said. He compares it to termites in woodwork. "You won't wake up tomorrow morning and say, 'Oh, God! The deficit has ruined my life!' " The effects, Aaron warns, may not be immediate, but they are very real.

For example, if interest rates rise by just one percent, you can expect to pay $1,200 extra per year in interest payments on a $150,000, 30-year fixed rate mortgage, according to the House Budget report. That's some serious cash.

Republican Senator Lincoln Chafee of Rhode Island was one of only three senators to vote against the latest cuts, citing the potential burden on future generations. Chafee favors cutting spending, not taxes. He points to the enormous amount of money the government spent this year on big-ticket items like the war in Iraq and Medicare's prescription-drug plan as reasons America can't afford more tax cuts. "It's just common sense," Chafee said. "You can't continue to spend and cut revenues [i.e. taxes]. We're elected to be stewards of our nation's finances and we're woefully inept at it."

Norquist sees the tax cuts as proof that the stewards are doing their job. "Senators are listening to their constituents and their constituents overwhelmingly want tax cuts," Norquist said. "Overwhelmingly" is right: Voters favored the cuts by a margin of three to one, according to a study conducted shortly after the vote by Rasmussen Reports. Of those polled under age 30, 56 percent said raising taxes next year would hurt the economy, while just 26 percent said it would help.

Despite his feelings that further tax cuts were unwise, Aaron sympathized with members of Congress who voted for the cuts despite personal opposition. "There is a sizeable minority of people who look out into the distance and see fiscal catastrophe, but [who] understand the electorate isn't with them and want to be around after January." Whether this is a rationalization or self-deception, most politicians realize that unless their voters are on board with an idea, it's unlikely that they will see a future term. "You raise taxes at great peril," Senator Chafee said. His seat is safe until 2006.

Critics on both sides seem to agree on one thing: "People under 30 should be most attentive because they are the ones most affected and should be most involved," said James Fallows, national correspondent for The Atlantic. "Politicians hear from all the people who most benefit from tax cuts. They don't hear from the ones that won't — like young voters."

—Maggie Master

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