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Cato Daily Dispatch for May 29, 2003

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

Treasury Report Says Federal Budget Deficits Could Total $44 Trillion

"The Bush administration has shelved a report commissioned by the Treasury that shows the United States currently faces a future of chronic federal budget deficits totaling at least $44 trillion in current U.S. dollars," reports the Financial Times. "The study, the most comprehensive assessment of how the U.S. government is at risk of being overwhelmed by the 'baby boom' generation's future healthcare and retirement costs, was commissioned by then-Treasury Secretary Paul O'Neill.

"The study asserts that sharp tax increases, massive spending cuts or a painful mix of both are unavoidable if the United States is to meet benefit promises to future generations. It estimates that closing the gap would require the equivalent of an immediate and permanent 66 percent across-the-board income tax increase."

In the Cato Handbook for Congress (PDF), Chris Edwards, Cato's director of fiscal policy, writes: "Bold fiscal reforms need to be pursued at both ends of Pennsylvania Avenue. The administration is under the shortsighted illusion that it can have bigger government in the selected areas it wants, such as defense, agriculture, education, and Medicare prescription drugs, but have tight limits on spending elsewhere. But that strategy leads to larger government everywhere because Congress is spurred to demand higher spending for all its favorite programs. Both Congress and the administration must end their shortsighted jostling for more taxpayer cash. Not only is the government running huge deficits again, but the looming explosion in entitlement costs demands that all aspects of the federal spending empire be overhauled.

"If reforms are not made, the uniqueness of the United States as a limited-government country will be gone."

On June 6, Cato will hold a Hill Briefing, "Entitlement Spending Explosion: Implications for the Federal Budget, Taxpayers, and Young Americans," featuring Douglas Holtz-Eakin, director of the Congressional Budget Office. The briefing will examine the projected costs of Social Security, Medicare, and Medicaid and the burden those entitlements will place on taxpayers and other government programs.

States Continue to Face Budget Woes

"More than 30 US states face long-term budget shortfalls that will extend far beyond the current crunch in their finances," according to the Financial Times. "The shortfalls will force permanent tax increases, spending cuts or both, according to a study filed with the National Bureau of Economic Research last year and updated for the Financial Times."

"The states' mistake was to allow rapid tax revenue growth during the 1990s to fuel an unsustainable expansion in spending," write Cato Director of Fiscal Policy Chris Edwards, Cato Senior Fellow and Club for Growth President Stephen Moore, and Phil Kerpen of the Club for Growth in "States Face Fiscal Crunch after 1990s Spending Surge".

"Between fiscal years 1990 and 2001, state tax revenue grew 86 percent-more than the 55 percent of inflation plus population growth," they write. "If states had limited spending growth to that benchmark, budgets would have been $93 billion smaller by FY01- representing savings roughly twice the size of today's state budget gaps. If revenue growth higher than the benchmark had been given back to taxpayers in permanent tax cuts and annual rebates, rebates could have been temporarily suspended during FY02 and FY03 to provide a cushion with which to balance state budgets."

Congress Again Targets Internet Gambling-But Not Pork Spending

"Internet gambling has taken the betting world by storm, but efforts are underway on Capitol Hill to put an end to online gaming," reports FoxNews.com.

"Lawmakers are crafting various measures that would make it illegal to use credit cards or electronic funds transfers to pay for gaming activities, and are hoping that banning revenue exchanges will cut the bloodlines to the Net gaming industry."

In "Should Washington Ban Internet Gambling?", Clyde Wayne Crews Jr., Cato's director of technology policy, writes, "Your after-tax income belongs to you. You're free to spend it, invest it, waste it, burn it, or tithe it, and none of that is the business of politicians.

"Government shouldn't turn vices into crimes-even granting the notion that gambling is a vice, which is open to question. Perhaps pork barrel spending is a more serious vice, one to which Congress should direct its attention. Are gambling losses significant compared to pork barrel and other extravagant spending, to which citizens are forced to contribute?

"Once we travel down the road of regulating behavior on the Internet, there's basically no limit to government's ability to regulate voluntary speech and interaction and to substitute its moral vision for those of individuals. Washington should mind the federal budget casino instead."

Wyatt Dubois, editor, wdubois@cato.org