'Reagan proved deficits don't matter," Dick Cheney told Paul O'Neill during a Cabinet meeting. "We won the (2002) midterms. This is our due."

No one is disputing the words of the former Treasury secretary in the new book, "The Price of Loyalty." Since Cheney had been responsible for bringing the "straight shooter" O'Neill into the Bush administration, we can take O'Neill's words for the truth.

Cheney's remarks bring this question to mind: What kind of a government is this? The idea that it is the Bush administration's "due" to run deficits and leave the bills for future taxpayers is a startling one. Governments run deficits, but it is the rare one that believes they are its right.

By "due," Cheney meant that because Republicans won the midterm elections on a platform of more tax cuts and deficit increases, they could pass still more tax cuts and run up still more deficits. Voters knew that a Clinton surplus of $200 billion had been transformed into a $200 billion deficit under Bush (it is now $450 billion), and voted for Republicans anyway.

That's what Cheney meant by "Reagan proved deficits don't matter." For Cheney, Reagan proved there was no political cost to big deficits.

But O'Neill, the treasurer, was talking economics. He worried about more tax cuts on top of the rising deficit, and Bush, briefly, showed some interest, asking if they hadn't already done enough for wealthy taxpayers. Adviser Karl Rove admonished Bush to "stick to principle" – the principle being that deficits were his due – and the debate was over.

A month later, Cheney called O'Neill to suggest he announce his wish to retire. "I'm too old to begin telling lies now," said O'Neill, so Cheney fired him.

These are big revelations. One thinks of presidents who heard different points of view: John Kennedy's Treasury secretary was Republican C. Douglas Dillon, and Kennedy heard all sides during the Cuban missile crisis. Lyndon Johnson kept George Ball in his Cabinet though Ball argued strenuously against escalation in Vietnam. Bill Clinton heard differing views from Bill Cohen, Sandy Berger and Madeleine Albright on Kosovo.

The notion that "deficits don't matter" can be defended politically only as long as voters agree. In polls prior to the 2002 midterms, voters worried about Bush's deficit and said they would rather have a tax increase than tax cut – then voted Republican. For Cheney and Rove, that was proof that deficits don't matter.

Even politically, that's a game that lasts only so long. Nations don't like the idea of passing the bill to their children any more than individuals do, and though they will accept deficits to stimulate the economy, when needed, the idea that they "don't matter" or are government's "due" is a strange one.

O'Neill clearly hit a nerve with his book, and the administration lost no time reacting. "We didn't listen to O'Neill's wacky ideas when he was in the White House; why should we start listening to him now?" one senior official told CNN.

Wacky? Where would we be if treasurers didn't worry about deficits and argue with presidents and vice presidents when they feel economic policy is politicized. The political parties have swapped economic roles in recent years – Republicans becoming big spenders and Democrats budget balancers – but between those extremes lies good economics, and the treasurer's job is to point that out.

There's a time for deficits and one for surpluses, and how money is spent should be part of any government debate. Bush's silencing of his treasurer for making economic arguments should disturb us all. While it may be possible (though dangerous) to argue that "deficits don't matter" politically, it is a terrible economic argument.

A budget deficit represents an intergenerational transfer: We pay lower taxes today so our children can pay higher ones tomorrow. Saddle future taxpayers with enough debt, as Bush is doing, and they will be unable to meet their own needs. Saddle them with debt at the very time programs such as Social Security and Medicare face deficits, and you risk social catastrophe.

The politicians that dispatched O'Neill don't worry about future taxpayers. They want votes today, and if they can get them via tax cuts, Medicare drug subsidies, amnesty for illegal immigrants and promises of going to Mars, what do they care about the bills? They'll be back on their ranches.

In two months, California voters will have a chance to vote on this issue of debt versus taxes. Gov. Arnold Schwarzenegger (who unlike Bush cannot run deficits or print money), wants voters to approve a $15 billion bond to close a current account gap.

Normally, bonds are floated to pay for capital projects – schools, highways, dams, etc. – passing both cost and benefits off to the future.

Borrowing to pay current bills is a risky idea. In last week's Field Poll, Californians said they preferred a tax increase to Schwarzenegger's bonds.

Following Cheney's dictum, however, Schwarzenegger – who ran against tax increases and even a vehicle license fee increase (the VLF is a sound and progressive tax) – can say debt doesn't matter, and passing the bill to our children is his due.

© Copyright 2004 Union-Tribune Publishing Co.

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