Coming soon from Washington: More freebies, more red ink

You might think the Obama Administration’s recent announcement that Washington just ran its largest-ever deficit in dollar terms, and its largest as a share of the economy since World War II, would discourage policymakers from giving more freebies to more Americans who don’t need them.

Think again.

This fall, the White House and Congress will likely provide one-time payments to tens of millions of senior citizens, and they may cut a tax that’s paid by the heirs of only the very largest estates in America.

That’s just a warm up to next year, however, when policymakers will take the far costlier step of extending most or all of President Bush’s huge tax cuts of 2001 and 2003, which are due to expire after 2010. Meanwhile, they will keep providing annual relief from the “alternative minimum tax” that would otherwise raise taxes on millions of middle-income Americans. All of that will add literally trillions to future deficits.

Why are they doing this? Because, for all the talk by lawmakers of both parties about restoring fiscal sanity in Washington, the vast majority of them want to allocate more goodies to more people, not take any away.

It is, to put it bluntly, insane.

The administration announced on Friday that the deficit for 2009, which ended September 30, totaled $1.4 trillion. That’s more than three times the record $459 billion of a year earlier. More importantly, it totaled 10 percent of the economy, as measured by the Gross Domestic Product (GDP) – the highest since 1945.

Worse, under reasonable assumptions about spending and tax policies, yearly deficits over the next decade will average about $1 trillion and far more than the 3 percent of GDP that economists believe is sustainable over the long term.

Washington’s need to get serious about deficit cutting has never been greater. Policymakers should turn to it once the economy is strong enough to absorb the tax increases and spending cuts that it would entail.

In the meantime, policymakers surely should not violate “the first rule of holes,” which is that

“when you’re in one, stop digging.” Yet, that’s precisely what they seem determined to do in the coming weeks.

Payments to senior citizens. Social Security recipients receive a cost-of-living adjustment (COLA) under a calculation that, many experts believe, more than compensates for the inflation that Americans experience.

For 2009, beneficiaries received a 5.8 percent boost, the largest in 25 years, based on changes in the so-called “Consumer Price Index for Urban Wage and Clerical Workers (CPI-W)” between the third quarter of 2007 and the third quarter of 2008. For 2010, however, they will receive no COLA for the first time since COLAs were established, in 1975, because prices dropped over the last year.

Make sense? Economically, yes. Politically, not quite. Neither the White House nor the vast majority of lawmakers want to feel the wrath of seniors who don’t get a COLA increase. Some lawmakers have proposed a 2010 COLA based on average COLAs of the last 10 years, while others want to give seniors a one-time payment of, say, $150 or $250 to make up for the missing


President Obama recently proposed a $250 payment, which would cost an estimated $14 billion – apparently in hopes of dampening support for the COLA option, which would cost billions of additional dollars every year forward by permanently increasing the base on which future COLAs are added.

With the White House on board and all of Washington running scared, Congress will likely enact something this fall, giving an unjustified boost to tens of millions of seniors and adding billions to Washington’s soaring red ink.

Estate tax. Only those who inherit the very largest estates – about one in every 400 – pay any estate tax. That’s because, under current law, estates up to $3.5 million for individuals and $7 million for couples are fully exempt. Beyond those thresholds, federal law taxes estates at 45 percent.

This fall, Congress is expected to consider, and may approve, a proposal by Senators Blanche Lincoln of Arkansas and Jon Kyl of Arizona to raise the thresholds to $5 million for individuals and $10 million for couples and to reduce the rate to 35 percent – all of which would cost $90 billion over the next 10 years. The senators argue, disingenuously, that the current tax hurts family farms and small businesses.

Congress may well go along, if only to avoid the wrath of farmers and small business owners who are ginned up over this issue – even though the vast majority of their heirs will never pay the tax.

So, here’s an idea: The next time lawmakers profess a desire to restore fiscal sanity, see where they stand on the pending pay-offs to seniors and to those who own the very largest estates in America.

That might tell you everything you need to know.

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