The housing crisis appears likely to be the next president's No. 1 domestic priority, sapping time and taxpayer dollars from some of the other initiatives that candidates John McCain and Barack Obama have proposed.
The Bush administration pledged to provide as much as $200 billion to help cover losses at Fannie Mae and Freddie Mac in the government's takeover of the troubled mortgage companies. The takeover was intended to shore up the nation's housing sector and reassure financial markets. But the plan also expands taxpayers' liability and could widen the federal budget deficit, which is projected at more than $400 billion for the 2008 fiscal year ending Sept. 30.
The nonpartisan Congressional Budget Office is expected to release an update Tuesday on the outlook for the current and next fiscal years. Congressional aides on both sides of the aisle were bracing for dismal numbers, with the 2009 deficit projected -- before the takeover -- to approach $500 billion.
Wisconsin Rep. Paul Ryan, the top-ranking Republican on the House Budget Committee, said the cost of the Fannie and Freddie rescue will 'raise the deficit' down the road and ultimately add to the fiscal challenges facing the nation. 'It throws a wrench in the gears of fiscal policy in Washington -- no two ways about it,' he said.
To be sure, the takeover of Fannie and Freddie could prove beneficial for taxpayers, especially if the housing market stabilizes and the government sells the companies at a profit. But that could take years. For the next president, the political agenda for 2009 is starting to look much different than the campaign-trail debate. At the start of the campaign, the housing crisis was only a blip on the political radar.
Cutting taxes, widening access to health care and reducing harmful greenhouse-gas emissions have more frequently been talked about by Sens. McCain and Obama. Both candidates have embraced balancing the budget; Sen. McCain has promised to do so by 2013.
Regardless of which party wins in November, the next president could be forced to scale back his priorities, as potentially billions of dollars are diverted to the housing rescue, on top of the ballooning budget deficit.
'They're going to have to rethink their plans,' says Robert Bixby, the head of the Concord Coalition, a group that advocates fiscal restraint.
Rudy Penner, a senior fellow at the Urban Institute, an economic- and social-policy think tank, said the deficit this year and next will remain 'very high.' He predicts 'there will be a lot of pressure' on the next president to confront the problem, regardless of what has been promised voters this year. 'The absolute size is going to be like a cold shower to the next administration,' he said.
Today's situation echoes the policy debates of the late 1980s and early 1990s. Then, the swelling budget deficit, fueled in part by the savings-and-loan bailout, made it more difficult for Congress and the White House to pursue domestic initiatives such as health care and tax cuts. In 1990, President George H.W. Bush gave up his pledge not to raise taxes, agreeing with Democratic congressional leaders on a plan to cut the deficit instead.
In 1993, President Bill Clinton abandoned a pledge to cut taxes for the middle class and instead proposed a plan to raise taxes -- mostly on the wealthy -- in hopes of trimming the deficit.
An economic adviser to Sen. McCain said the next president will face a grimmer spending picture. 'This is not good news. Nobody should be happy about the . . . fact that we had to bailout out these institutions,' said Douglas Holtz-Eakin. 'We will simply inherit . . . the legacy of a much diminished starting point on spending. That's a legacy about which we are not really happy.'
An adviser to Sen. Obama said the Democratic candidate's budget proposal provides enough flexibility to absorb the costs of the rescue because, over time, the budget plan would generate enough revenue to cover all new spending proposals.
Greg Hitt / Nick Timiraos |
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