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American Morning

Ron Brownstein on State of the Economy

Aired December 26, 2001 - 07:33   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: Because of our concentrated efforts to report the tragedy of September 11 and the events ever since, we've paid less attention to some other big issues. One of them is the faltering economy and the political implications of all of that.

Political columnist Ron Brownstein writes Washington Outlook for the "Los Angeles Times." He joins us from Washington this morning.

Ron, while we've been paying attention to all of this, what's been going on in Washington?

RON BROWNSTEIN, POLITICAL COLUMNIST, "LOS ANGELES TIMES": Well good morning, Miles, happy holidays.

You know in any normal year, without a doubt the big story in Washington this year would have been -- this fall would have been who lost the surplus. When President Bush took office last January, the Congressional Budget Office estimated that we were really going to be rolling in the money and a projected surplus of $1.35 trillion through his first term. The other day, his budget director -- the administration budget director came out and said we are going to be in deficit this year, next year, the year after and probably the year after that. Now that's a financial trajectory that a lot of Americans looking at their Christmas bills this morning can probably relate to. But it still probably represents the sharpest and most sudden deterioration in the government's financial position in our history.

Only a few months ago, we were debating how quickly would it be theoretically possible to pay off the national debt. Now it looks like we're going to have to raise our national debt ceiling as soon as this spring. So it's an enormous turnaround in a very short period of time.

O'BRIEN: I suppose a lot of people's heads are spinning out there. How could this have happened? A lot of people would talk about the tax cuts that the president pushed for, is that what we're talking...

BROWNSTEIN: Yes.

O'BRIEN: ... about or is it the economy as well?

BROWN STEIN: Well, the tax is a piece -- it's all of the above. The tax cut is a -- is a big piece of it. The best estimates somewhere between 55 and 60 percent of the reversal may be attributed to the tax cut. The economy contributed, and also, Miles, all of these big bills for homeland security and prosecuting this war. You know when we passed this tax cut, we were living in a time of peace and prosperity.

Right now, we're looking at enormous expenditures for the military and for hardening targets at home, very different circumstances, and that, of course, raises the question of whether we can still afford all of the tax cut that we promised ourselves over the decade last spring. There is really no precedent in American history for cutting taxes as we go into a war. Of course we didn't know we were going into a war when we cut the taxes.

O'BRIEN: Well a lot of people would tell you that a little deficit spending here and there when used properly isn't such a bad idea.

BROWNSTEIN: Well, and in fact I think very few people in -- on Capitol Hill say it's inappropriate to run a deficit in the short term in dealing with this emergency both in terms of the unexpected slowdown in the economy and these undeniable and really unavoidable needs at home and abroad. The question is the long term. We are now on track to spend money that was raised for Social Security to run the general operations for government for at least through 2008, according to the best estimates. And as I said, we're going to go -- not only go through all of that money but begin to increase the national debt for at least the next three or four years.

And the question is, do you lock yourself into a sort of fiscal arrangement in which you are systematically increasing the debt again and putting yourself and your kids deeper in the hole? That's going to be the big debate in Washington this year whether the circumstances have changed enough that we simply need more revenue to cover the additional costs that are associated with defending ourselves in this new challenge.

O'BRIEN: All right, we'll factor this in to the upcoming mid- term elections 2002 and then even beyond. How will this play politically?

BROWNSTEIN: Well, I think in the 2002 election, the point you made before will overshadow it and that is that it will be possible for politicians to argue that they are dealing with an emergency. I think Americans are going to be surprised when these formal numbers come out early next year. It's taken us a while to believe the budget was out of the red and into the black, and now as soon as we know it, you know it goes back the other way. So I think people are going to be shocked.

But on the other hand, I think they're going to accept the argument, at least in the short term, that we needed to do this. The longer term I think is dicier. I don't think that politicians want to be running, and certainly President Bush in 2004, with deficits projected out again as far as the eye can see only a few years after we were, as I said, facing the prospect -- the happy prospect of paying off the national debt and leaving our kids without that enormous interest burden every year to pay as part of the -- pay as part of the budget. So I do think there is going to be pressure on politicians in the long run to move us a little closer to balance or at least on track to getting back to our balance through the latter part of this decade.

O'BRIEN: Well let me ask you this, though, do Americans really care about the deficit? Is that a real issue for them? They care about the economy and how it affects the pocketbook, right?

BROWNSTEIN: They care about -- right. They care about -- there are probably three -- I don't think they care about the accounting, you know where the accountants place the health of the federal government. There are three actual factors that they do care about. One is the economy, and a return to deficits can put upward pressure on interest rates -- long-term interest rates. That would be one fear.

Secondly, I think many Americans over the last few years have been attracted at the idea of paying down or even off the national debt and leaving their kids a much more stable financial picture over the long run in terms of what they may have to pay in future taxes.

And finally, with the money so tight, a lot of priorities that people expressed and talked about in the 2000 election and that have come up since are going to be squeezed, whether it's prescription drugs for seniors, which is something that a lot of people expected, more federal help for education, for the uninsured, those without health insurance, or now these new needs of homeland security. All of these are going to be difficult to fund at the level that Americans probably expect while the federal government's fiscal position is again so weak. So while it is something of an abstraction, there are tangible consequences to it that people can relate to and feel over the long run.

O'BRIEN: Ron Brownstein looks at politics for the "Los Angeles Times." Thanks for being with us this morning, Ron.

BROWNSTEIN: Good morning, Miles. Thank you.

O'BRIEN: All right. Take care.

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