KANSAS CITY, Mo. — It all seemed so grand on the campaign trail: massive tax cuts. Health-care reform. A stronger military. New ways to get Americans through job training and college.
Even a few months ago, the pricey promises of presidential candidates John McCain and Barack Obama might have been reasonable.
Then Wall Street’s knees buckled from the weight of upside-down mortgages and their related securities.
Whether Congress ultimately delivers a $700 billion bailout, and whether such a rescue package props up America’s financial sector, analysts see the ambitions of the next president evaporating like the balances in so many 401(k) accounts.
“It wasn’t going to be easy anyway,” said James Horney, the director of federal fiscal policy for the Center on Budget and Policy Priorities. “Now there will be pressure to rein things in.”
He is among the more sanguine. Horney stresses that the $700 billion won’t just disappear. Number crunchers are projecting — albeit with great uncertainty — that the government will eventually get much of the money back and could even turn a profit.
In fact, Washington could simply print more money or go deeper in debt to cover the bankers’ busted loans — if it were willing to overlook the effects that the resulting inflation or a bigger national debt would have on the economy.
Still, Washington is being asked to tide over Wall Street’s shortfall with more money than it spends on the military in a single year. Even then, no one is sure the loan will stop the economy from its free-fall into deep recession.
Analysts say that means even more-of-the-same budgets would translate into ever-steeper deficits.
Neither McCain nor Obama, however, has talked about status- quo budgeting. Rather, McCain has pledged to cut taxes by almost $4.2 trillion from 2009 to 2018, while Obama promises cuts of $2.9 trillion.
So last Friday, presidential debate moderator Jim Lehrer asked the two how they’d account for newfound hard times.
Obama suggested pulling troops from Iraq might save $10 billion a month, while McCain floated the possibility of freezing spending on “everything but defense, veteran affairs and entitlements.” Both answers sidestep budget reality.
Even if Obama withdrew troops at the rate he suggests, the savings would come slowly and might be wiped out by shifting firepower into Afghanistan. And in nearly the same breath, Obama talked about more spending on early childhood education.
McCain’s suggestion spares the vast majority of the federal budget and leaves susceptible those areas that have proved most resistant to cuts — discretionary programs ranging from transportation to education to law enforcement.
“Every president for a generation or more has said he’s going to cut those things,” said Cindy Williams, a former analyst for the Office of Management and Budget and now a defense spending specialist at the Massachusetts Institute of Technology.
Instead, the changes would come in greater deficits or in curtailed military spending.
Put the numbers in perspective. In the federal budget year that began Wednesday, total military spending will equal $607 billion. The Pentagon is expected to ask for an additional $100 billion for war costs, an added request that Williams said is likely to be curtailed in a lousy economy.
Economist Alice Rivlin of the Brookings Institution said the idea of staving off deficits by raising taxes won’t fly in a recession. And she said McCain’s plan to extend the Bush tax cuts — aimed at those who earn the most money and pay the most taxes — won’t be popular.
“The sympathy for upper-income people, for Wall Street, isn’t going to be there,” she said.
