September 11, 2005
Sunday

WASHINGTON - The most expensive natural disaster in U.S. history is sucking up money at the rate of $2 billion a day - more than the cost of the Iraq war - and throwing an awkward spotlight on GOP efforts to extend tax cuts on dividends and capital gains and shave Medicaid spending while thousands of poor people are homeless on the Gulf Coast.

Despite Republican assurances that President Bush's second-term agenda remains on track, Hurricane Katrina has dealt a blow to his plans to overhaul Social Security and the tax code, extend his signature tax cuts, shrink the federal deficit and stay the course in Iraq.

"The political and substantive reality is that the agenda has to change," said Leon Panetta, a chief of staff to President Bill Clinton and a former longtime Democratic House member from California. "I don't think they have any choice."

Republicans quickly shelved plans this week to repeal the estate tax. They also delayed a big budget bill containing tax and spending cuts, and Bush's high-profile tax-reform panel, set to announce recommendations at the end of the month, postponed its meeting this week.

Yet as Congress approved a $62.3 billion down payment for immediate relief - within a week nearly equaling the entire bill for the Sept. 11 terrorist attacks and almost triple the cost of the 1994 Los Angeles earthquake - liberal and conservative analysts alike warned that Washington's response to the disaster could turn into a spending-and-tax-cut spree spreading far beyond the Gulf Coast.

"There is a window where nobody will be willing to say 'no' to anything as long as it has a 'Katrina' label on it," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Senate Democratic leader Harry Reid of Nevada has estimated the cost at $150 billion, while Senate Budget Committee Chairman Judd Gregg, R-N.H., said it could run as high as $200 billion.

Until the waters fully recede, however, no one knows what the cost will be, but it will include an enormous cleanup, including environmental hazards, repairs to bridges, roads, ports and power plants, rebuilding of businesses and homes as well as public facilities such as universities, hospitals and courthouses, and income support for displaced people.

"If anyone gave you a number, they'd be making it up," said a House Democratic aide. "I don't think anybody knows. It's going to be astronomical."

Farm-state lawmakers are urging aid for drought-plagued Midwest farmers who cannot get their crops to market through the Port of New Orleans. Business lobbyists are pushing for long-sought tax cuts as an economic stimulus. Lawmakers from neighboring Texas are asking for help to pay for housing and schooling for storm evacuees.

Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities, urged both parties not to exploit the disaster.

"Whether it be from tax cuts or pork-barrel spending, experience shows that once you open the door on one, it becomes harder not to have the door opened on the other," he said. "It becomes a free-for-all, and everyone feeds at the trough."

Louisiana is a swing state coveted by both parties. The two other stricken states - Mississippi and Alabama - are solidly Republican.

"This is obviously a very expensive proposition, and it hits in red states, so Republicans will be foremost among those pushing for relief," said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group.

The Bush administration, under criticism for being slow to respond to the disaster, "is not going to hold anything back," he said.

With businesses leveled and tens of thousands of people without income, the tax bases of Louisiana and Mississippi have been decimated.

"Mississippi received huge chunks of revenue from the 18 casinos that are now sitting in the middle of farm fields," said Ron Utt, an analyst with the conservative Heritage Foundation. "There will be operating subsidies that will be required by the federal government, simply because you have a city no longer generating sales taxes. There's nobody there to pay the property tax. There's no income being generated to pay income taxes, at a time when their expenditures are soaring."

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