As President Bush faces a second term, one of his first actions will be to define his goals and lay out agenda for the next four years. As Bush outlined on November 3rd, two of his most ambitious plans include both reforming the federal tax code and making changes to social security, all while continuing to fight a war against terrorism.
While this ambitious agenda is perhaps helped by the fact that the President has majority support in both Houses of Congress, it is hampered by some of the policy changes he forced through during his first term. Bush begins his second term with the economy in somewhat of a different state than he faced when first taking office. While in 2000 the nation enjoyed a healthy budget surplus, this year has the nation facing a large deficit as well as growing homeland security and defense needs. Federal tax revenue was $100 billion lower this year than it was when Bush first took office. On top of this, spending was $400 billion higher. This large discrepancy between revenue and spending has helped to create the largest budget deficit in our history. And, in response to four years of rising budget deficits, the Treasury announced on Wednesday that the government will borrow $147 billion in the first three months of 2005, to help fund its programs and policies. This level of borrowing, when it occurs, will be a new quarterly record.
Thomas Mann of the Brookings Institution recently said, "On the domestic side, huge budget and current account deficits, historically low federal revenues as a share of GDP, the approaching retirement of the baby-boom generation, health care cost inflation, and escalating spending pressure for homeland security and defense will handcuff a president hoping to pursue new policy initiatives.
This administration will seriously be looking into trying to make permanent some of the tax cuts they passed over the last four years, and Bush has already laid some of the groundwork for this. Permanent tax cuts would greatly impact the amount of federal revenue collected by the government, and would cause even greater financial strain for agencies and institutions that rely on the government for funding. It is estimated that permanent tax cuts could cost the government $1 trillion dollars in revenue between 2005 and 2014.
When Bush sends his version of the budget to Capitol Hill early next February, it will clearly demonstrate how far this administration is willing to go to push the policies they outlined at both the Republican National Convention and on the campaign trail. For more information on second-term tax and budget issues, click here and here.