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Thursday, November 03, 2005

John Snow Discusses the Budget Deficit

I've been talking some at this site about the risks deficits pose and the need to begin addressing the problem. Be careful what you wish for. In this interview, John Snow discusses the administration's plan to keep taxes low and then cut programs until the budget improves, though political realities make the plan he discusses difficult to implement. The plan expects the tax cuts to generate revenue and avoid many cuts, but I see that as wishful thinking. Here's the interview with The Financial Times:

Financial Times interview with John Snow, US Treasury Secretary, by Andrew Balls and Edward Alden, Financial Times:

FT: .... At the outset of President Bush’s second term it was very clear to everyone what the domestic agenda was -- social security reform, make the tax cuts permanent and at some point move on to tax reform. I would be very hard pressed to tell you right now as an outside observer what the priorities are for this administration domestically for its last three years. What do you want to achieve?
JS: A clear priority of this administration right now is the deficit. Making sure we achieve the president’s objective of cutting the deficit in half by the time he leaves office in 09 .... We remain convinced that the way to do that is... to sustain the low tax environment... And with all of that revenues have come in at a very strong level. We’ve got the highest revenues we’ve ever seen in the history of the United States now. .... Are low tax rates consistent with fiscally responsible behaviour? And I think the answer is clearly yes as long as there’s an intense focus on spending... And you’ve seen us doing that now. ... That’s what this effort is with the House and Senate leadership and the administration is all about now. We’re getting very good response from the Congress, very good response. So I would put at the top ... Number two is sustaining the low tax environment. ...

FT: Sorry are you going to make a big issue of that? Roy Blunt [acting House Republican leader] yesterday said they didn’t think they could do that in reconciliation.
JS: Well, we’re going to press for it. You asked me what our policies are, and tax permanence is certainly at the forefront of our policies. ... On social security, it remains an important of objective for the administration. ... the longer-term deficit can only be addressed if we look at these unfunded obligations, and I think you’ll see the President continuing to make the case for reforms... We’ll continue to push health care initiatives.

FT: Just to push a bit more on the deficit. I presume you chose your words carefully because it was in the book where your predecessor [Paul O’Neill] was quoted extensively that Mr Cheney said deficits don’t matter. A lot of people are going to see this as a late conversion by the administration. Why is this suddenly so high up the list?
JS: I’ve always wondered why that question gets raised. When the President asked me to take this job he knew I was a deficit hawk. I was then, I am now, and I’ll leave here as a deficit hawk. Did the deficit grow? Did we find the deficit growing to a level we didn’t like? Yes, but we did have homeland security needs, we had a war in Iraq, a war in Afghanistan and we had the revenue side of the equation hit hard by the collapse of the equity markets ... and by the recession. So I’ve never wavered in my view that deficits matter. ...

FT: Just on tax. Obviously there’s lots of work to do but also you’ve done lots of preparation all year. Both proposals put forward by the panel deal with the AMT [Alternative Minimum Tax] which obviously is a big problem. They largely do that by looking at the big reductions, housing, health and then the exemptions… Is that something you’re going to take on?
JS: Well we’re certainly going to want to look at what they’ve said ...

FT: As an economist it seems like a very good idea to look at those deductions, broaden the base, lower the rates. But in terms of the politics of mortgage interest, health insurance and state exemptions….
JS: I don’t know at this point what we’re going to recommend and we’ve got to think this through carefully. ... We’re going to use the panel’s report as the starting place, ...  when we bring these proposals to the President he will have a wide scope. ...

[Link (free) to Financial Times story accompanying the interview - the interview and article also cover other topics such as China.] [Brad DeLong comments on budget realities.] Once again, I posted this quickly and didn't have a chance to comment much. Fortunately, visitors today have been doing a good job of filling in the missing pieces.

[Update: macroblog has more.]

    Posted by on Thursday, November 3, 2005 at 05:06 PM in Budget Deficit, Economics, Politics, Social Security, Taxes | Permalink  TrackBack (0)  Comments (0)

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