Today is the first day of President Bush's Economic Summit, which will address issues such as budget and tax reform, health care, and social security. Social security has been widely discussed recently, as this administration has made clear their intent on overhauling the program. According to this New York Times article, however, plans to reform social security may result in significant benefits cuts for retirees in the future due to many factors, including the size of transition costs. Bush recently stated that he was opposed to the idea of raising payroll taxes to offset transition costs.

Senator Lindsey Graham (R-SC), one of the original proponents of reform, very recently warned however that borrowing the entire sum of transition costs to reform the program would be irresponsible. Because of current budgetary constraints, Graham told Fox News Sunday he supports temporarily lifting the program's tax base, or pushing up the $87,900 cap on personal income subject to Social Security. He said, "I don't think you can make the tax cuts permanent, have alternative minimum tax relief, and borrow the entire transition cost--which is over $1 trillion, and have debts that we can sustain."

To read more about Graham and the social security debate, click here and here.

This week Congress is voting to raise the debt limit by approximately $800 billion. The debt limit, which before this week was set at $7.4 trillion, serves as a ceiling that reflects the legal amount that the government can borrow. Although the Bush administration claimed in 2002 that the debt limit would be adequate until 2008, their prediction was incorrect. When Congress raises the level this week, it will mark the third time since 2002 that it has needed to be raised. See this Watcher article for more information.

On November 17th, the Senate voted 52-44 to increase the debt limit, and the House is expected to vote to pass an increase today. While raising the debt limit is a necessary manuever in order to ensure that normal monetary transactions continue, the frequency with which this has happened over the past three years should cause alarm.

The current level of debt is harmful to the economy; it threatens the stability of Social Security and Medicare benefits, and it also increases interest rates, slowing economic growth. And serious debt reduction will be extremely difficult in the future. Federal revenue is currently at its lowest in half a century, at just 16.2 percent output. President Bush's push for permanent tax cuts along with the ever increasing cost of the war - in tandem with this low level of revenue - will make it difficult for this government to reduce either the national debt or the yearly deficit.

Congress' work this week to increase the amount of money the government can borrow is necessary yet somewhat fruitless; the increase is needed to fund programs and agencies, yet it is driving our country further into debt. Lawmakers should ask themselves, as they continue to increase the debt limit on an almost annual basis, who will end up bearing the majority of this burden in the future.

For more information on the debt limit and the budget see this Center for American Progress article.

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.