Commentary

If Congress Won’t Cut the Budget, Then Freeze It

By Stephen Moore
January 13, 1997

In 1997 the federal budget will reach $1.65 trillion. That’s $1,650,000,000,000. It is the most ever spent by any government in world history. In fact, it is more money than the combined federal budgets from 1800 to 1940, even after adjusting for inflation. That includes the cost of fighting the Civil War, World War I and the Great Depression.

Even if the budget were halved tomorrow, the federal government would still consume a greater share of national output (12 percent) than it did throughout most of American history.

After two years of a Gingrich-led Congress with much glorious rhetoric about balancing the budget, spending will rise by some $60 billion this year. Just the budget increase of $350 billion that is contemplated by the White House and Republicans in Congress from 1996 to 2002 is larger than the entire federal budget as recently as 1970. Boy, we’ve sent some real tightwads to Washington.

Yet the sad irony is that even as Republicans propose increasing federal spending by one-third of a trillion dollars, the left pummels them as cold-hearted scrooges. Most Americans I talk to think that the Gingrich forces have actually proposed deep cuts in the overall amount that government spends each year. Here’s a common-sense strategy to get the American people to focus on the truth of the budget escalation. Freeze spending. Stop its growth now. For the past quarter century the federal budget has grown on average by more than 7 percent per year—or about twice as fast as inflation. Even the first Republican Congress in 40 years — on the promise of smaller, less intrusive government — approved budgets that grew by 4 percent per year.

Given its near-bankrupt state and the low rate of return Americans receive on their tax dollars sent to Washington, why should government grow over the near term? The accompanying figure shows that the cumulative savings for the next six years from a budget freeze would be $1.3 trillion relative to the budget path that we are now on.

Locking in a spending freeze, as has been proposed by the National Tax Limitation Committee, would certainly force tough choices on Congress. Lawmakers would have to establish spending priorities and live within a genuine budget—as most Americans define the term. A freeze would invoke a fierce, but healthy, competition among agencies for federal dollars and create a kind of “reverse log-rolling” effect in Congress. Outlays for favored programs could be increased, but other agencies would have to be cut or eliminated to accommodate the expansion. Many obsolete programs would almost certainly have to be abolished altogether to force spending under the ceiling. Legislators would be compelled to curtail the huge entitlement programs of Social Security, Medicare, and Medicaid, because if those programs were not restrained, all other programs in the budget would have to shrink rapidly.

The spending constituencies in Washington would, of course, loudly protest a spending freeze. They would argue that it requires a scorched-earth budget policy, squeezing out funding for vital programs. Conservatives will need to make the case that the government should be easily capable of doing everything it is supposed to do with $1.65 trillion a year. Most businesses and households have managed to do more with less for the past five years as budgets have been pinched. Why should government be immune from the belt tightening?

Can it really be done? Contrary to the conventional wisdom, there is no law of nature, or economics or politics that requires the federal government to grow every year. During most postwar eras, such as we are in now, the federal U.S. budget has declined in size. For example:

* In 1919, the last year of World War I, the federal budget climbed to $18.5 billion. By 1926 it had fallen to $2.9 billion.

* In the seven-year period from 1945 (the peak of spending on World War II) to 1951, the U.S. government’s budget tumbled by half, from $93 billion to $42.4 billion.

* During the Korean War the federal budget rose to $76 billion in 1953. By 1955 it had fallen to $68 billion.

The typical pattern in each of those postwar eras was the same: as military expenditures fell, wartime tax burdens were cut and the budget was moved quickly back into balance. We even ran budget surpluses to begin paying off the wartime debt.

The exception has been the post-Cold War era. Since the collapse of the Soviet Union there has been no tax cut, no retirement of the debt and no balanced budget. Contrary to historical precedent, since the Berlin Wall came down, the federal budget has actually increased by $350 billion. A spending ceiling would end the insidious practice of using defense savings to hike the budgets of domestic agencies.

The total savings of $1.3 trillion from a spending freeze would produce a balanced budget by 2002 and provide a fiscal dividend large enough to pay for a $1 trillion tax cut. That would make possible the complete abolition of the capital gains tax and the estate tax, vastly expanded tax-free IRAs and a $500 per child tax credit.

A $1 trillion six-year tax cut would reduce static revenue collections by 10 percent, or $1 trillion out of a $10.03 trillion tax take over the next six years. It is the kind of real peace dividend that American families and businesses deserve. It is large enough to get voters pumped up and mobilized. This tax cut is eight times larger than the Republicans’ incredibly shrinking tax cut.

The message of the GOP should be clear: government must do less, so that Americans can do more. And if Newt Gingrich and his allies can’t, or won’t, deliver that message, then they are as big a part of the problem as the Clinton Democrats.

Stephen Moore is director of fiscal policy studies at the Cato Institute.