WASHINGTON -- House Budget Committee Chairman Leon Panetta declared war yesterday on the growing number of congressional tax cut proponents who want an economic stimulus package at the risk of sending the deficit into the danger zone.
"Our economic house is not order. It is sagging badly, and there's a lot of debt rot. You can't fix it with a can of Raid and a quick paint job," the California Democrat warned.
Congress is unlikely to find a "magic potion" that will jump-start the economy, he said. "The most important short-term fiscal stimulus would be if President Bush and Congress agreed to a long-term strategy."
What consumers, businesses, and the financial markets want to see is a far-sighted plan for reducing the deficit and increasing savings, competitiveness, and productivity, he said.
Mr. Panetta made his remarks as he released a report by his committee detailing the alarming growth of the deficit and debt service costs. The U.S. government could approach bankruptcy if it does not resolve the deficit problem and the structural economic problems underlying it, the report warns.
The report projects that even under the optimistic assumption that the economy recovers soon and resumes healthy growth, the deficit is likely to remain stuck above $300 billion over the long term.
"The projections portray a budget in a precarious state ... If the economy fails to match its projected growth rate or interest rates are higher than expected, the nation's debt service costs will grow markedly faster than the economy," the report says.
"When individuals find that they cannot meet the interest payments on their accumulated debt, the inevitable result is bankruptcy; for the federal government, the inevitable result is continuing economic turmoil," the report says.
In light of the report's dire outlook, Mr. Panetta said he would not be a party to abandoning the pay-as-you-go discipline and other budget rules adopted in the budget agreement last year. The congressional tax committees will have to find ways to pay for any middle-class tax cuts they come up with next year, he said, such as with increased taxes on the wealthy.
The budget chairman also indicated he would resist any "buy now, pay later" tax cut plan that proposes to raise taxes or pass offsetting defense spending cuts after the tax cut is passed. Such a plan would require modification or outright suspension of the budget agreement.
"We have to be very careful about opening that door," he said. Once such a large evasion of the agreement is approved, "that clearly would unwind" all the other disciplines over the budget, he said.
Plans for using future military cutbacks to fund immediate tax cuts have already been advanced by both Democrats and Republicans. Mr. Panetta opposes them. "It's not so simple to just reach into the defense grab bag" to pay for tax reductions, he said.
The congressional budget and appropriations committees would have to agree to such a move, he said, and they more likely would advocate using the defense savings to pay for increased spending on domestic programs.
Mr. Panetta said he and other committee members would stand fast for long-term economic cures next year. The committee report laid out a 10-year plan for reducing the deficit by about $1 trillion through a combination of defense spending cuts, curbs and reforms in government health care spending, and tax increases
