The good news on the budget front is that both the Bush administration and Congressional Democrats want to eliminate the deficit by 2012.
The bad news is that they are at daggers-drawn about how to do it. President Bush wants to keep all of his tax cuts alive indefinitely and freeze domestic spending, while Democrats have a huge spending wish list and want to eliminate the tax cuts for the richest Americans.
There's more bad news as Bush prepares to deliver his State of the Union address and unveil his fiscal 2008 budget: Democrats suspect that his balancing act will be based on overly rosy tax-revenue estimates and on impossible policy assumptions, rendering his budget DOA on Capitol Hill.
White House officials say that Bush will rely on a 6.5 percent annual increase in government tax receipts to achieve balance, which they say is possible because his tax cuts have spurred robust economic growth.
However, while tax revenues have surged lately — achieving a high of 14.5 percent growth in fiscal 2005 — the average for past economic recoveries is in the 4 percent range.
Moreover, the administration is expected to assume that the alternative minimum tax remains in place, though Congress, annually, has passed a "fix" to prevent it from socking middle-class taxpayers.
One top Democratic budget staffer said he expected Bush, too, to propose a freeze in programs like veterans' health and impose cuts in Medicare doctors' fees — "items even the Republican Congress rejected."
Democrats also anticipate that — despite promises to the contrary — Bush again will fail to adequately build Iraq war costs into his budget. "We are expecting a not-serious, credible budget," the staffer said.
Meanwhile, while Democrats are promising to exercise fiscal responsibility and resist urgent appeals from constituency groups for more domestic spending, Republicans charge they've already started a spending binge during their first "100 hours" — on homeland security, for example — and won't be able to resist demands from farmers, teachers unions and health lobbies. All of this presages epic battles over appropriations later this year.
That's the short-term picture as the two sides try to pare an estimated $260 billion deficit down to zero in five years. Bad news.
Longer term, the news is much worse. As the Heritage Foundation's Stuart Butler puts it, "If they did succeed in balancing the budget by 2012, it'd be like having a margarita on the beach before the tsunami hits."
That's because, as the baby boomer generation reaches retirement age, the costs of Social Security, Medicare and Medicaid entitlement spending will surge after 2015, rising by 2040 to eat up the entire federal budget and requiring a 50 percent tax increase on workers or drastic benefit cuts for seniors to pay for defense and other government services.
But wait — there is good news. Serious bipartisan efforts are under way at the think-tank level to educate the public about the fiscal crisis ahead and establish consensus about a possible "grand bargain" to achieve long-term balance.
And, after Democrats last year rejected Bush's call to form a bipartisan commission on entitlement reform, there's hope this year that some panel could be formed — preferably of real Congressional and administration decision-makers — to work on a long-term deal.
The ideological breadth — and intellectual heft — of participation in the think tank exercise is truly impressive. It includes Butler on the right, the Brookings Institution's Belle Sawhill on the left, and Robert Bixby of the Concord Coalition and Comptroller General David Walker of the Government Accountability Office in the center.
These four — plus additional experts including Bush budget director Rob Portman — have conducted nearly 20 "wake-up call" seminars around the country, mainly at university schools of public policy, making the point that America's long-term fiscal outlook is "unsustainable" — in fact, perilous to the nation's prosperity and security.
The experts call for action — the earlier the better — such as imposing even tighter controls on spending than the Democrats' new "pay-as-you-go" rules, reforming health care to control costs and cover the uninsured, increasing the Social Security retirement age, means-testing Medicare benefits and raising revenues.
Both administration officials, including Treasury Secretary Henry Paulson, and key members of Congress like Senate Majority Leader Harry Reid, D-Nev., Sens. Kent Conrad, D-N.D., and Judd Gregg, R-N.H., and House Budget Chairman John Spratt, D-S.C., have expressed willingness to talk about entitlement reform.
Bush has said he is even willing to talk about revenue increases, though he's said he'd resist tax hikes. White House adviser Karl Rove has offered to bet — but only $5 — that there won't be any tax increases on Bush's watch.
So the good news is that there's bipartisan agreement on both short-term and long-term ends. The bad news is that the two sides are far, far apart on means. But both sides are scared enough about the long-term danger to be willing to negotiate seriously.
Now, all they have to do is to see the short term as the prelude to the long term. Democrats have to restrain spending, and Republicans have to raise revenues. The fix isn't conceptually complicated. It just takes political courage. What great news it would be if our leaders found some.
Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill.