Last night President Bush unveiled his initial ideas about plans for reconstruction of the Gulf Coast in the aftermath of Hurricane Katrina. The president did not mention how much he expected this to cost, how he thought the country should pay for it, or what sacrifices he expected citizens to make to help out with the efforts. Congress has already approved over $60 billion for emergency relief efforts, with another emergency supplemental expected sometime in October. The large amount of existing spending plus vague, but potentially costly plans for reconstructions has some members of Congress once again worried about deficits. Before the president addressed the nation last night, fiscally conservative members of the House and Senate held a press conference with government watchdog groups asking the President to reign in federal spending for Gulf Coast states decimated by Katrina. Sens. Tom Coburn (R-OK), John McCain (R-AZ), Jim DeMint (R-SC), and Rep. Mike Pence (R-IN) led the calls for fiscal restraint. Sen. McCain stated, "We know this is a huge bill and we don't want to lay it on future generations and Speaker of the House Dennis Hastert (R-IL) commented after the president's speech, "for every dollar we spend on this, it is going to take a little bit longer to balance the budget." But cutting relief and reconstruction efforts, or other parts of the budget is not the right answer. It is budget cuts and underinvestment that played a part in making the impact of Katrina so much worse along much of the Gulf Coast. If those conservatives are truly concerned about balancing the federal budget and not passing on debts to future generations (and not simply shrinking the size of government), they need to look at more than simply reducing federal spending - they need to reconsider the incredible number of tax cuts passed over the past five years that have driven government revenues to its lowest level in 50 years. Countless projections and estimates (see here, here, here, and here) show the combination of massive tax cuts and current policies leading to decades of unsustainable, deep, and persistent deficits. In order to truly address consistent budget deficits, and to pay for not only the relief and reconstruction efforts in the Gulf Coast, but also long-term preventative investments in the infrastrucure and people of America, the President and Congress must reverse some of the tax cuts passed over the past five years.

Earlier today, the Senate approved by unanimous consent a small tax cut package designed to help those displaced by Hurricane Katrina and also encourage others to continue contributing to the relief effort. The package was announced yesterday by Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT) and was scored today by the Joint Committee on Taxation as costing $8 billion. The House passed a similar tax cut bill this afternoon. The two chamber's versions differ mainly in their handling of charitable giving incentives and in their approach to the Earned Income Tax Credit. The House version ensures families do not lose tax benefits because of temporary relocations; ensures that forgiven debt, such as a mortgage cancellation, is not taxable; provides a $500 per person tax deduction up to $2,000 for taxpayers who temporarily house displaced victims of the hurricane; allows full deductibility for personal casualty losses; waives the 10 percent tax penalty for early withdrawals from retirement plans; extends the Work Opportunity Tax Credit so employers who hire victims of the hurricane can claim a tax credit; lengthens the period of time for replacing damaged property; expands availability of below-market mortgages; and encourages cash donations by individuals and corporations. Congressional leaders hope the differences can be worked out quickly in conference.

The Government Accountability Office (GAO) has released a report assessing the pros and cons of tax reform proposals. The report, "Understanding the Tax Reform Debate: Background, Criteria, and Questions," states "Long-term budget simulations by GAO, the Congressional Budget Office, the Office of Management and Budget, and nongovernment analysts show that absent policy changes, the federal budget is on an unsustainable path." The GAO recognizes that a change in tax policies will put us on a more sustainable fiscal path, and while this report does not offer any new policy ideas, it does give a thorough run-through of how the current tax system works and criteria for a good tax system, as well as issues that may arise when transitioning to a new tax system.