Money for Rebuilding Katrina Damage to be Borrowed

Just when we get some tiny bit of good news that the budget deficit this year is going to be quite a bit lower than initially estimated, Bush decides that isn’t a good thing and that we’ll borrow even more money. I don’t know, but I’m begining to suspect that somebody told Bush that in terms of percentage of GDP current deficits haven’t reached record levels he took it as a challenge.

WASHINGTON, Sept 16 (Reuters) – President George W. Bush’s advisers said on Friday billions of dollars needed to rebuild New Orleans and the Gulf Coast will be borrowed and will raise the deficit but Bush still wants to extend tax cuts.

Don’t get me wrong, I like tax cuts. However, financing them with budget deficits means that in the future we will have higher taxes plus interest. The oft repeated bromide that the tax cuts will raise tax revenues just isn’t going to happen. What needs to happen is that spending needs to be cut. The pork fest that was the Energy Strategy would be a great place to start. Not that I expect the prok addicted politicians to actually do something like this.

Some members of the U.S. Congress say it could cost $200 billion, and nobody at the White House was denying the figure, which would exceed the costs of the Iraq war.

“There’s no question that the recovery will be paid for by the federal taxpayer and it will add to the deficit,” said White House economic adviser Allan Hubbard, while stressing it is a one-time cost.

Well more accurately it is a one time expense that will rack up interest until the debt is paid off. So in a sense it will keep costing us whatever percentage (compounded at whatever intervals) until it is paid off. Cool, eh? Bush’s reputation has taken a hit due to Katrina so he’s solution is to spend not just our money, but money we haven’t even earned yet.

Hubbard said the administration will propose $2 billion to create a Gulf Opportunity Zone in Louisiana, Mississippi and Alabama.

The money would be used to spur investment and rebuilding by offering substantial tax write-offs for equipment and reconstruction costs.

Great, so we end up with a bunch of investments that otherwise wouldn’t have been made. Talk about a great way to encourage even more people to move to, build in, and live in an area that will probably end up flooded the next time another Katrina type Hurricane comes along in that region. Further, how many of these projects will depend on these special “write offs” and will fold if they are removed. Lowering the taxes on one group of people requires raising taxes on another group.

FILED UNDER: Economics and Business, Natural Disasters, US Politics,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. ken says:

    Steve, this is nothing new. Bush is running the country just like he ran his businesses: on other peoples money. The massive budget deficits and the conservatives unwillingness to pay them back was entirely predictable. It has been their modus operandi ever since the Reagan (‘Pigs at the trough’) years.

    Even now, facing another two hundred billion dollars in borrowing needs from Communist China, conservatives are unwilling to forgo another massive tax cut, this time to the topmost wealthiest people in America.

    Conservatives are sicko-wierd, un-american and just plain dumb.

  2. pragmatist says:

    Tax cuts in the right place at the right time can spur growth.

    For example no taxes on let’s say the first $30,000 profits from a privately run business, limited taxes on limited amounts of capital gains and dividends can spur small investors.

    But notice no reduction for interest? Yet loans finance most new business.

    There is all sorts of micro tinkering which is questionable or destructive actually distorting markets to the advantage of certain players. Then there is the mass flows such as reducing the tax rate for billioniares below that of the middle class.

    I think a rational policy is possible, but I wonder if it possible within the context of today’s politics.

  3. Barry says:

    In a way I anticipated this – Reagan demonstrated that unprecendented [in peacetime] deficits were no political liability. He spent freely and handed the problem off to Bush I and Clinton, whose efforts to rein in the deficit were disparaged by right-wingers.

    Heck, Krugman was telling everybody who’d listen about this back in 2000-01. Too bad he didn’t take bets on it; he’d be filthy rich by now.

    The really disturbing thing, long-term, though, is who’s going to clean this up? It’s clear now that Bush 1 and Clinton took nothing but political heat for improving the situation, and their work was immediately undone. Why should the next president expend one drop of political capital to fix it, except as needed to avoid a crisis during his term?

  4. DL says:

    I still believe that this might be a good way to re-institute the old fashioned Tax shelter. Put out a one time break for those willing to put up cash – benefits to accrue over several years -call it a rescue shelter. Also the govt could provide rescue bonds that allow a related exemption in the estate tax due – might attract big bucks. The idea is that the tax code can be honed just for this one time. (Isn’t that what they said about the income tax?) Oh well!

  5. anjin-san says:

    No suprise here, Bush will borrow and spend any amount of money to try and get people to forget the massive failure of the federal govt. to respond to Katrina.

    Tax breaks for billionaires remaine a priority…

  6. odograph says:

    I think the Higwhay Bill ranks right up there for “prok” too.

  7. Herb says:

    I still think that the best way to get a bundle of money is to “CUT THE PORK” from some 13,000 bills that have been passed by congress so far. I really don’t think that will ever happen because these so called “Representatives of the People” will never cut a dime from their “Vote Buying” pork barrel{” The dumb-o-crats would never stand for anyone to cut into their biggest means to gain (buy) votes and the power. On top of that, the Liberals now see Bush as “using their strategies” to “help the people” and are about to go crazy.

    If you have ever been to Louisiana or ever lived there, you know how the Louisiana democrat political machine worked and held some people down to poverty levels not seen in other parts of the country, so don’t blame Bush for the failures of the Louisiana political machine if you don’t have first hand experience. Better look at the Dems before you go spouting off about something you don’t know about

    Louisiana was the “Pork Barrel State”.

  8. The “pork fest that was the Energy Strategy” was 12.3 billion spread out over 10 years.

    Thus, NOT a good place to start.

    I know railing against pork is a guaranteed applause winner in nearly any audience, but pork is a remarkably small proportion of federal spending.

  9. DL says:

    Technically of course, we all know that the President doesn’t spend – congress does – they can reject his request! Remember (Barry) that Reagan raised through massive tax cuts, outrageous surplus revenue, only to have it mis-spent by congress – his failure was -he should have vetoed it!

    DL,

    The strike through is caused by have a – followed immediately (i.e. no space) by a letter.

    -example-

    Steve

  10. DL says:

    Sorry about the strike through – I haven’t any idea what causes it? Suggestions?

  11. DL says:

    Sorry about the strike through – I haven’t any idea what causes it? Suggestions?

  12. ken says:

    DL, and don’t forget that despite Reagan’s massive tax increase, the largest tax increase in American history, he still doubled our national debt by running huge deficits. It was, according to the Reagan budget director, ‘pigs at the trough’ time for conservatives.

  13. RM says:

    “The oft repeated bromide that the tax cuts will raise tax revenues just isn’t going to happen.” Errr….they are paying for themselves or haven’t you been paying attention to the economy and the INCREASED tax revenues that created the lower deficit estimate.

    The problem I have with paying for Katrina with more borrowed money is that it completely ignores the billions of $$$ in pork that could be trimmed here. When was the last friggin time Congress (& the Pres) actually did some hard work to sit down and reorder what is really important and what can cease to be? C’mon you can say it….we won’t laugh.

  14. Steve Verdon says:

    “The oft repeated bromide that the tax cuts will raise tax revenues just isn’t going to happen.” Errr….they are paying for themselves or haven’t you been paying attention to the economy and the INCREASED tax revenues that created the lower deficit estimate.

    Was that really due to the tax cuts or the economic expansion that typically follows a recession?

    FYI, note the author’s name.

  15. RM says:

    While some credit can probably be assigned to the recovery as a “normal rebound” from the recession, I reject the idea that is all that is at work here (much less a majority reason). The cuts provided the evidence needed for the markets to be convinced of the government’s sincerity vis-a-vis the encouragement of trade and business creation. IMO, looking back though history, there is more than enough evidence to show that the Laffer Curve really does work and it has worked again.

    What about the author’s name?