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Wednesday, September 24

Congress will probably use federal charge card for Iraq costs

By Jon Frandsen | GNS

There is little doubt now that Congress will approve the $87 billion President Bush is seeking for the occupation of Iraq, but there is no agreement on how to limit the potential fiscal harm to this country either.

That means piling the money onto a federal deficit for 2004 that is already projected to be a record $480 billion. And that means fiercer battles in Congress over how to spend scarcer resources, and a potentially serious drag on the economy.

``I don't want to say I told you so,'' said Sen. Olympia Snowe, R-Maine, who fought to limit tax cuts this year until the costs of the war were better understood. ``However...''

Snowe did not need to complete the sentence to make clear her concern over the puddles of red ink staining the government's books.

While most Republicans disagree with Snowe that tax cuts have worsened matters, the shock over the size of the request Bush formally made last week appears nearly universal.

By way of example, $87 billion is nearly one quarter of the estimated $400 billion cost of providing prescription drug coverage for Medicare beneficiaries that is supported by most members of Congress. The drug proposal is for a decade. Bush's Iraq war request is for 2004 alone - and many analysts predict it will not be enough.

Since there appears to be broad agreement that the request will be approved with few changes, the alarm has turned into suggestions for curtailing costs:

- Sen. Susan Collins, R-Maine, wants the $20 billion in reconstruction costs treated as a loan to Iraq. That's been rejected by the administration as too much of a burden for Iraq.

- Sen. Joe Biden, D-Del., suggests putting off further tax cuts that are scheduled to take place in coming years. Republicans reject that, warning such a move could further stunt economic recovery.

- Conservative Republicans would like to cut spending, but are outnumbered by moderate Republicans and Democrats. ``I don't want Americans to pay a price for what is going on in Iraq,'' Snowe said about why she could not support budget cuts to offset some of the reconstruction costs.

As various options are raised and dismissed, a resignation is settling in across Capitol Hill that the entire amount will simply be heaped upon the country's already massive debt of nearly $4 trillion.

``With some members, there was the sticker shock of $87 billion and they are trying to grapple with that,'' said House Majority Leader Tom DeLay, R-Texas. ``They are coming to realize that even though they have some pretty good ideas, they just won't work.''

Federal deficits, the annual shortfall between what the government spends and what it takes in, have been a common fixture since the late 1930s. They are not always a worry.

But when deficits become large, seemingly permanent features of the budget, the effects can be debilitating to the economy and the government.

The cumulative debt that deficits cause carry huge interest payments - estimated at $322 billion this year, nearly four times Bush's war request - that gobble up money that could be used for other purposes.

The competition for lenders can drive up interest rates and slow growth.

And the new round of deficits could not come at a worse time. The country has yet to figure out how to deal with the pending retirement of the baby boom generation, which begins in the next decade. That group of retirees is so large that both Social Security and Medicare will be in danger of collapsing.

Few are suggesting that the war is so costly and the deficits so deep that the United States should abandon Iraq.

But that could change if the war drags on, few allies are found to help shoulder the burden in Iraq and there is no agreement on how to control costs.