Commentary

Bush Budget Reveals Serious Overspending Problem

The Bush administration’s fiscal 2004 budget shows an admirable reform spirit in its pro-growth tax cut proposals, support for private Social Security accounts, and government management initiatives such as competitive sourcing. But the administration has failed to tackle the serious overspending problem in the discretionary budget.

Indeed, based on his first three budgets, President Bush is the biggest spending president in decades. For FY2004, discretionary outlays will rise 3.5 percent, which follows increases of 7.8 percent in FY2003 and 13.1 percent in FY2002. Non-defense discretionary outlays will rise 3.2 percent in FY2004 following increases of 7.9 percent in FY2003 and 12.3 percent in FY2002.

Rather than spending increases, the return to deficits and the coming cost explosion in elderly entitlement programs means that discretionary spending should be immediately frozen and major cuts identified. The administration has backed large increases in the defense budget — from $306 billion in FY2001 to $390 billion in FY2004. Yet it has not offset those increases with an aggressive plan to reform non-defense spending by major program terminations, privatization, and moving functions such as education back to the states.

The following budget data highlight the continuing overspending problem in the federal government.

  • The biggest spending administration in decades. With Bush’s budget plan for FY2004, real non-defense discretionary outlays will rise 18.0 percent in his first three years in office (FY2002-FY2004). That growth far exceeds the first three years of any recent presidential term, including Ronald Reagan’s first term (-13.5 percent), Reagan’s second term (-3.2 percent), George H. Bush’s term (11.6 percent), Bill Clinton’s first term (-0.7 percent), and Clinton’s second term (8.2 percent). When Reagan came to office and pursued a large defense build-up, he essentially froze non-defense discretionary outlays, which were $150 billion in FY1981 and just $151 billion three years later in FY1984 (in current dollars).
  • A spending freeze would eliminate the deficit. The FY2004 budget would increase discretionary outlays from $791 billion in FY2003 to $926 billion by FY2008. If, instead, discretionary outlays were frozen at the FY2003 level, the deficit would plunge to just $55 billion by FY2008. The budget could be balanced even more quickly with reforms to cut rapidly growing entitlement costs. If total outlays were frozen at the FY2003 level, the budget would essentially be balanced in just two years (by FY2005).
  • Spending increases dwarf proposed tax cuts. The administration proposes to increase total federal outlays by $89 billion in FY2004, $114 billion in FY2005, and more than $100 billion each year thereafter. As spending increases accumulate, annual outlays are expected to be $571 billion greater in FY2008 than in FY2003. By contrast, the tax cuts in the administration’s growth package have a tiny effect on future budgets. By FY2008, the Bush growth package tax cuts would reduce federal revenues by just $50 billion annually in FY2008.
  • Only 2 of 21 major departments and agencies are cut. Only 2 of the 21 major federal departments — Justice and Labor — would receive an actual cut in discretionary budget authority in FY2004. While most departments receive small increases this year, many have had substantial growth in recent years. For example, the Department of Education budget has jumped from $40.1 billion in FY2001 to $53.1 billion in FY2004. During the same period, the Health and Human Services budget increased from $54.2 billion to $66.2 billion, State and International Assistance from $20.4 billion to $27.4 billion, and Veterans Affairs from $22.4 billion to $28.1 billion.
  • Almost $400 billion for state and local governments. State officials are demanding a federal government bailout to make up for their poor fiscal management. Yet the budget shows that total federal grants-in-aid to state and local governments increased from $285 billion in FY2000 to $384 billion in FY2003. The administration has resisted as large a bailout as states want, but grants are still expected to rise to $399 billion in FY2004.
  • Bush vs. Clinton for FY2004. When former President Clinton introduced his FY2000 budget, he proposed that non-defense discretionary spending for FY2004 should be $335 billion, as shown in Figure 1. President Bush is now proposing that non-defense discretionary outlays rise to $429 billion in FY2004, or almost $100 billion greater than Clinton’s original plan. The sad fact is that the administration and Congress do not adhere to out-year budget plans, as they always spend far more than originally proposed. Unless the Bush administration pursues major program cuts and terminations, its 2.3 percent proposed annual average growth in non-defense discretionary outlays (FY2004-FY2008) is very optimistic.

Proposed Nondefense Discretionary Outlays for FY2004

Chris Edwards is director of fiscal policy at the Cato Institute.