With the national government swimming in red ink, Kansans can expect fewer government services, increased inflation and ultimately higher taxes, officials and some economists predicted Monday.

Paying the interest on a record deficit pegged by the White House at $374.2 billion in 2003 “generally means taking money from the middle class and giving it to richer people who own bonds,” said Kansas University economist David Burress. He is critical of the Bush administration’s tax cuts, which many blame for fueling the ballooning deficit.

Burress said more inflation and less government services would be the likely first consequences of the deepening gap between federal revenues and spending.

State budget officials accepted, at least in part, Burress’ gloomy forecast.

A heavily hocked federal government is less likely to maintain aid to states, which already are suffering their own budget woes, officials in Topeka said.

“The likelihood of future federal help on funding mandates or fiscal relief are much less as the deficit grows,” said Duane Goossen, a former Republican legislator who serves as budget director for Kansas Gov. Kathleen Sebelius.

Goossen said key questions about federal funding remained unanswered and could be affected by the deficit, such as whether the federal government would establish prescription drug benefits for seniors, increase funding to states for Medicaid, re-authorize transportation spending and increase special education funding. Ultimately, he said, the answers to those questions would affect state governments already struggling to cope with flat revenues.

“We’re going the wrong way now — instead of digging our way out of the hole, we’re digging a deeper hole,” said 3rd District Congressman Dennis Moore, a Democrat who represents eastern Lawrence.

Moore warned that the deficit, combined with an economic recovery, could trigger a return of the “17-18 percent interest rates we saw in the late 1970s.”

¢ White House sees silver lining in numbers

Republicans concerned

Such interest rate increases, he said, would be “disastrous to anyone who has to borrow money, whether to buy a house, start a business or go to college.”

The answer, Moore said, is not to raise taxes; instead, it’s to stop cutting taxes.

“Two years ago, I voted for the president’s tax cuts,” he said, “because at the time we were in surplus mode. This year I voted against the tax cuts because we’re in deficit mode.”

Republicans among the state’s federal delegation also expressed concerns about the deficit.

“We must exercise spending restraint and continue to encourage economic growth to get back to a balanced budget as soon as possible,” said 2nd District Congressman Jim Ryun, who represents western Lawrence.

U.S. Sen. Sam Brownback, R-Kan., said the soaring deficit was the result of Congress not living within its means. “We must restrain federal spending,” he said. “This is just as important today as it was under the previous administration.”

To borrow or not?

Burress, a research economist at KU’s Center for Economic and Business Research, said the growing deficit endangered the nation’s future by forcing the United States to borrow heavily.

“We are losing control of our destiny. We are giving it away to foreigners, just like any Third World country,” Burress said.

Paying off the deficit and its interest costs will produce “pressures on government to lay off employees and raise taxes. It’ll probably mean a big jump in inflation,” he said.

The Bush administration’s tax cuts, promoted as a way to get the country out of recession, have been the main deficit culprit, Burress said.

“That was wrong,” he said. “These were tax cuts aimed at rich people, not the middle class and poor people.”

But George Bittlingmayer, the Wagnon Distinguished Professor of Finance at KU, said the amount of money the nation borrows was not as important as what was done with the money.

The old record

“The whole struggle over the deficit is in reality a struggle over spending,” Bittlingmayer said. “One side in this struggle reduces taxes until the deficit becomes too painful to look at, and that winds up being a constraint on the spending side. The other side looks at this huge deficit, and says we have to tax more, and then when the taxes come in, they’ll increase spending.”

He said it was not unusual for the United States to run a deficit. “As a country, the United States has had high and low deficits, and surprisingly it doesn’t seem to make a lot of difference,” he said.

Providing its final accounting of the budget year that ended Sept. 30, the administration said the 2003 deficit was more than double last year’s imbalance of $157.8 billion. It said the costs of the war in Iraq, a new round of tax cuts and economic weakness pushed the red ink to the highest level in history.

In dollar terms, the 2003 figure easily surpassed the old record of $290.4 billion set in 1992, when President Bush’s father was president.