Thirty years ago, a young Harvard economist published a research article with a deceptively simple question in its title.  “Are Government Bonds Net Wealth?” asked Robert Barro in the Journal of Political Economy in 1974, and those five words ushered in a new way of thinking about what governments can, and cannot do, to stimulate the economy.  And, to my way of thinking at least, those in Congress who are voting for spending increases and tax cuts at the same time should have been paying attention.

Barro’s idea was really pretty simple.  From any individual’s point of view, government bonds are certainly assets.  But from the economy’s point of view they are also IOUs that government is obliged to repay.  To put it more bluntly, they are tax increases, to occur at some point in the future to meet the obligation.  And since governments create these obligations whenever they spend more money than they take in, can deficits really be said to stimulate the economy?

The small space of this newspaper column is certainly not going to provide the definitive answer to that question.  But we can call attention to the undeniable fact that the Federal government has been creating new obligations – and hence new tax increases in the future – at a blistering pace in the last few years.

Fiscal year 2003, which ended about eleven months ago, produced a unified budget deficit of $374 billion in Washington.  This necessitated government borrowing from the private sector of an equal amount, with obligations for future repayment.  But through the first ten months of this fiscal year, the federal government has already surpassed that. 

The $395.8 billion in red ink produced by Congress thus far in FY 2004 is 22 percent higher than we experienced in the first ten months of FY 2003, and is on track to produce a $450 billion deficit when the full year is done.  Even though the first ten months of this fiscal year have seen a 4 percent increase in revenues, signaling a clear end to the recession’s impact, the federal deficit has continued to widen.

And if those numbers aren’t frightening enough, when you take away the modest surpluses generated by programs like Social Security, the deficits embedded in the Congressional budget are even worse -- $545 billion for the first ten months of FY 2004.

It’s not hard to figure out why.  Spending by Congress, most notably on defense and Medicare and Medicaid, is exploding.  Defense spending is up about 15 percent this year, thanks to the operations underway in Iraq and Afghanistan.  The new prescription drug benefit to Medicare has helped boost spending on that program by 10 percent, with commitments for increased spending well into the future.  Overall spending by the Federal government was up 7.2 percent in the first ten months of the fiscal year.

The tax cuts that went in place during the first half of 2004 have played a role as well.  Personal tax receipts were down slightly in the first 10 months of this fiscal year, although the comparisons are complicated by mailing of one-time rebate checks at mid-year.  Other taxes, notably corporate taxes, have bounced back strongly with the recovering economy.

And there’s more spending bills yet on the horizon.  The highway bill and the energy bill, as well as the commitments made to expand Medicare, make the wrinkles of concern of Congressional candidates over mounting deficits look insincere.  The best that the Bush administration can do is promise to cut the deficit in half in the next four years.

If Robert Barro is right, the Congress men and women who sign their names to this legislation – and the President who refuses to veto it – are effectively raising our taxes.  If not for this generation, then certainly for the next.