Bush: No Tax Hikes to Pay for Relief

President Bush (search) on Friday said he was committed to a massive recovery effort in areas affected by Hurricane Katrina (search) — no matter the cost, as long as tax hikes were not part of the plan.

"It's going to cost money, and I'm confident we can handle it," the president said during a joint press conference with Russian President Vladimir Putin (search) at the White House. "We're going to make sure we cut unnecessary spending, maintain economic growth and therefore, we should not raise taxes."

But while Bush said the government should not take more money from working Americans, White House officials and top Republicans on Friday acknowledged that U.S. taxpayers would be funding the recovery plan.

"Right now, it's falling on the taxpayer broadly, but also on that next generation," Senate Majority Leader Bill Frist said during a congressional trip to New Orleans.

Bush did not answer reporters' questions with specifics about how the government would pay for such an unprecedented undertaking, but he repeatedly said that the spending would not stop until "there's an infrastructure."

The president said "economic-growth zones" — which presumably entail tax incentives for businesses — would be laid out to encourage businesses to return to flood-ravaged areas. Bush also said some government programs would be cut, but did not specify which.

The previous evening, Bush had announced a far-reaching, ambitious plan to rebuild the Gulf Coast and help Katrina's approximately 3 million victims find new housing and jobs.

The cost of cleaning up affected areas, rebuilding towns and cities and resettling displaced residents is predicted to reach between $100 billion to $200 billion. The government is already spending $2 billion a day on cleanup and recovery efforts, and while that figure is expected to drop it will still likely outpace daily spending in Iraq.

Economists who were concerned about America's fiscal health well before Katrina said it was urgent that the president start listening to them.

"We had a very serious budget problem before Katrina hit," said Jim Horney of the Center for Budget and Policy Priorities.

Horney said that before Katrina, the federal budget deficit (search) was already unlikely to fall below $300 billion over the next 10 years assuming Congress made Bush's tax cuts permanent, ongoing military operations in Iraq and Afghanistan and millions of new baby boomer retirees.

The White House in July projected the fiscal 2005 budget deficit would hit $333 billion, down from last year's record $412 and below forecasts. Economists believe the massive recovery effort — one of the largest ever in the world — will only push the deficit back up.

"It's important to understand there is no piggy bank when you think about emergency money for disasters, because we're already in a deficit situation. We have to borrow that money," said Linda Bilmes (search) of the Kennedy School of Government at Harvard University.

The U.S. economy, nearly $8 trillion in debt, has been kept afloat largely because countries including China, Japan, Saudi Arabia and South Korea have been snapping up U.S. Treasury bonds and notes. But not one of the countries is doing so for altruistic reasons, and could stop buying up U.S. debt at their whim.

"Half our national debt is already owned by these countries. We are vulnerable to the vicissitudes of the decision-making of these countries, who could decide they don't want to lend us money anymore. Not because of animosity, but because they are looking out for their own economies," Bilmes, a former assistant secretary of commerce, warned.

Bilmes' old boss, former President Bill Clinton, echoed that forecast last week in a visit to China, which has bought more U.S. debt than any other country. Clinton told an audience of businessmen that their country would eventually have to dial back on buying U.S. dollars in order to boost its own currency, the yuan.

Horney and Bilmes agreed that by refusing to raise taxes, the Bush administration was just digging itself a deeper hole.

"In the long run that's got to be part of the solution, rolling back tax cuts," Horney said. "If you don't [approach the deficit] as a shared, balanced approach where you look both at the revenue side and spending side of the budget, you don't do much to decrease the deficit. You can't do it without doing both."

"Philosophically, the view of this administration has been that by lowering taxes, it would stimulate investing, growth, etc," Bilmes told FOXNews.com. "At this point will they say, 'We understand, it doesn't negate this philosophy, but we've already had one financial disaster in terms of Iraq blowing a hole in our resources, and now we have this.'"

But opponents of higher taxes said it was unfair for average Americans to foot the bill for a natural disaster.

"The government is responsible for securing the area, cleaning it up and rebuilding the basic infrastructure," said Jonathan Hoenig, managing member of Capitalistpig Asset Management and a FOX News contributor. "But it's not the job of government to redistribute everyone else's income to those in the area."

Rep. Jeff Flake, R-Ariz., praised Bush for saying he would not raise taxes.

"If the total cost of the hurricane recovery effort approaches $200 billion, as some have suggested, that would amount to every family in the country paying about $2,500. The last thing we need to do would be to saddle taxpayers with a tax increase," Flake said in a statement.

Economists also questioned the scope and depth of Bush's plan, and wondered if he wasn't overreaching in an effort to make up for the government's initial, admittedly incompetent response to the disaster.

"He screwed up, and both [former Federal Emergency Management Agency Director] Michael Brown and [Homeland Security Secretary] Michael Chertoff really screwed up, so taxpayers are going to get the bill," said Chris Edwards of the CATO Institute. "Bush is overcompensating by promising the moon because his administration screwed up. Politics is driving policy."

Under Bush's plan, the federal government will reimburse schools that take in displaced students, cover health care costs for all evacuees and give $5,000 accounts to evacuees to help with job training, housing and child care.

"The federal government doesn't have the money. The rebuilding money should come from state and local budgets," Edwards told FOXNews.com. "States should issue bonds for long-term investments for freeways and the like. ... They should look at innovative private financing mechanisms."

But not all the responsibility fell on the Bush administration, Edwards said, pointing to the pork-laden spending bills that have come out of Congress recently.

"The levees were a public interest project, but Congress" — including lawmakers from Louisiana — "misallocated money to these special projects, and these true public interest projects like the levees weren't funded. That's the scandal, it seems to me."

Bilmes said she wondered whether all the spending under Bush's plan was appropriate.

"One issue that needs to be asked more squarely is the number of people affected by Hurricane Katrina directly is three million people. That's one percent of the population, and we're spending 10 percent of the entire tax revenues of the country on them," she said.

Some also questioned Bush's plan to boost home ownership among minorities in the devastated region, which would provide federal land but leaves recipients with the costs of homebuilding.

"It's not clear how much property is available in the right places, and it's not clear how the president anticipates people who get that land will pay for construction," Horney said. Getting a mortgage might be too difficult for the poorest, and Habitat for Humanity — which Bush said could help with costs — built just 5,400 houses last year, Horney added.

CATO's Edwards said if Bush's approach to spending doesn't change after two national catastrophes and two wars, his place in history has already been cemented.

"The thing I have never understood about this administration is that these high deficits will mean that the next president comes in, from either party, and will try to reverse all of Bush's tax cuts," he said. "All his programs will be eliminated and he will be remembered as the big spending president. ... He's leaving a substantially negative legacy."