Snow defends permanent tax cuts

WASHINGTON -- The Bush administration is committed to making its tax cuts permanent at the same time it intends to cut the budget deficit in half within five years, Treasury Secretary John Snow said yesterday.

Snow warned that Congress would threaten the economic recovery if it rolled back the administration's tax cuts, something that President Bush's Democratic opponents are urging because of the exploding budget deficit.

Instead, Snow said, the administration would focus on getting Congress to make the tax cuts permanent, saying this would be at the "very center" of the administration's fiscal policy in the coming budget.

"Let me be perfectly clear: Failure to make the tax relief permanent would be a huge mistake and would put our recovery in jeopardy," Snow said in an appearance at the US Chamber of Commerce.

Snow's comments were immediately challenged by Democrats, who accused the administration of continuing policies of showering the rich with massive tax cuts that will jeopardize the government's ability to honor commitments to 77 million baby boomers who will begin retiring early in the next decade.

In his speech, Snow argued that the tax cuts had been a major force lifting the US economy out of a recession and a prolonged period of sluggish growth. Snow said a Treasury Department analysis showed that without the tax cuts the unemployment rate, currently 5.9 percent, would be a full percentage point higher and as many as 1.5 million Americans would not now have jobs.

But Democrats argued that even if the recent positive job growth continues through next November, Bush will not have made up all the jobs lost in the first three years of his administration, giving him the worst job creation record of any president since Herbert Hoover.

"The administration's policies have created huge deficits that will stifle future job growth and burden our children and grandchildren with debt," said Representative John Spratt, the top Democrat on the House Budget Committee.

Snow said the federal government faces a deficit "in the $500 billion range" in the current fiscal year, which would be a record in dollar terms. However, Snow said this deficit will represent roughly 4.5 percent of the total economy, as measured by the gross domestic product, compared with a modern-day peak of 6 percent set in the 1980s when Ronald Reagan was president.

He said the $500 billion deficit "is not historically out of range and it is entirely manageable."

He said that the administration intends to deal with the deficit by working with Congress to impose spending restraint on government programs.

"With adoption of the president's policies, our projections show a solid path toward cutting the deficit in half, toward a size that is below 2 percent of GDP, within the next five years," he said.

Until now, the administration has been vague about what it meant by cutting the deficit in half. Cutting this year's expected $500 billion deficit in half in dollar terms would mean a reduction to a deficit of $250 billion, which would mean achieving hundreds of billions of dollars in savings, a difficult political task.

However, achieving a deficit equal to around 2 percent of GDP, given that the economy is growing, would allow the red ink to total $300 billion or more, meaning $50 billion less in spending cuts.

Snow said his effort would "dramatically" improve the budget situation, but a report issued yesterday by the International Monetary Fund warned that deficits of this magnitude would still be too large given the looming retirement of the baby boomers and the demands they will make on government benefit programs.

Facing recent attacks from conservative Republicans about a failure to rein in spending, the president, in his new budget, is expected to propose limiting the growth of discretionary programs to 4 percent, perhaps excluding defense and domestic security.