Even before the release of the new federal budget, President Bush’s budget chief Josh Bolten has begun the damage control. On one flank, the president is trying to ward off the increasing despair in his conservative base caused by his huge spending increases and big deficits. On another flank, the mainstream media are beginning to run front-page stories on the administration’s fiscal irresponsibility.
Bolten took to the opinion page of The Wall Street Journal in December to defend the administration’s fiscal record. His excuses for high spending and deficits are not convincing. First, he says deficits have been caused by declining revenues from the sluggish economy. That was a good argument two years ago, but the economy is growing strongly again and the government should have made adjustments in response to the leaner revenue picture. When revenues fall, the government should cut spending to balance the books just as any business would do.
The administration’s other argument is that spending has been driven by defense and national security needs. That was also a good excuse for awhile, but the administration should have been working on reform ideas to cut domestic spending to offset defense increases. Defense is certainly a high-priority spending area, but the administration has not identified low-priority spending areas that could be cut. Indeed, Bush has signed every spending bill that crossed his desk while his veto pen has collected dust.
Bolten argues that the president hasn’t vetoed a single spending bill because “he hasn’t needed to.” It’s more likely that the president hasn’t vetoed any spending bills because he hasn’t wanted to. Each spending bill that has come to his desk has represented a new vote-buying opportunity, whether it was the big education bill in 2001, the big farm bill in 2002, or the even bigger Medicare prescription drug bill in 2003.
The drug bill is the largest entitlement expansion in 40 years. Its advertised price tag of $400 billion is actually a big understatement of the true cost. The Congressional Budget Office estimates that the bill could cost taxpayers as much as $2 trillion in its second decade because of the rapid increase in the number of elderly in future years. Besides, Senator Ted Kennedy called it only a “down payment” for future drug program expansions.
In stark contrast, the Republicans sought cuts to Medicare in the 1990s because they were rightly concerned that the program’s cost will spin out of control when the baby boomer generation retires. Unfortunately, today’s Republicans, led by Bush, have made the coming elderly spending time bomb that much more explosive.
After increasing 24 percent in the past three years, the budget is in desperate need of cuts to get federal finances under control. But cuts are not a policy option that the current White House considers very much. At the time of this writing the new budget figures are not available, but it looks like the administration will request a 3 percent increase next year for non-defense, non-entitlement programs. In some years, 3 percent may seem like a reasonable increase. But we currently have a roughly $450 billion deficit. Shouldn’t the administration be calling at least for a freeze in federal spending to get the giant deficit under control?
In addition, the White House seems content to call for cutting the deficit in half in five years. That is remarkably timid. In the 1990s, the Republican Congress battled against all deficits and forced President Clinton to embrace a plan to completely eliminate the deficit over a period of years. Non-entitlement spending actual fell in 1996, a truly rare event in federal budgeting.
The administration’s spin on today’s fiscal situation is not very convincing. In the Journal op-ed, Bolten wrote:
In the last budget year of the previous administration (FY ‘01), domestic spending unrelated to defense or homeland security grew by an eye-popping 15%. With the adoption of President Bush’s first budget (FY ‘02), that number was reduced to 6%; then 5% the following year; and now 3% for the current fiscal year.
The first thing to notice is that Bolten chooses to exclude at least four-fifths of the federal budget from his statistics. Federal spending is of two basic types: discretionary and entitlements. Discretionary spending is determined annually through the appropriations process and amounts to about two-fifths of the budget. Defense accounts for about half of discretionary.
The other three-fifths of the federal budget is interest and entitlement spending, chiefly Social Security, Medicare, and Medicaid. Bolten leaves entitlement spending out of his figures. Entitlements are often said to be on autopilot because it takes a law change to reduce spending on them. As a consequence, politicians often act as if they aren’t responsible for the rapid spending increases that occur in entitlements. For example, Medicaid spending has grown at an average 11 percent per year the last three years while the administration and Congress have looked the other way. In truth, Congress can cut entitlement spending anytime it wants. After all, Congress just changed the law to massively increase Medicare spending for the prescription drug bill.
Nonetheless, let’s zero in on the one-fifth of the budget that is non-entitlement and non-defense. Bolten claims that the administration has been fiscally responsible in this area of spending. Actually, he carves even more spending out the equation, only looking at non-defense spending that is “unrelated to homeland security.” It is on this small fraction of overall spending that Bolten says the administration has not overspent. But even here, the administration figures are suspect. Indeed, some areas like education spending have seen huge increases.
Politically, it must be frustrating for the Republicans who have worked hard in the past to cut government to see today’s Republican president become one of the biggest spenders in decades. When the GOP gained control of Congress in 1994, they promised to eliminate the deficit and reduce wasteful spending. In their Contract with America in 1994, Republicans committed to “restoring fiscal responsibility to an out-of-control Congress, requiring them to live under the same budget constraints as families and businesses.” For several years, they did modestly curtail spending growth, and they balanced the budget in 1998 for the first time since the 1960s.
The Republican emphasis on spending restraint at the time also seemed to move President Clinton to the political center. In his 1995 State of the Union message, Clinton proclaimed: “Let’s change the government — let’s make it smaller, less costly and smarter — leaner, not meaner.” In his message for the 1996 budget, Clinton argued: “Except in emergencies, we cannot spend an additional dime on any program unless we cut it from another part of the budget.”
In the 1990s, many Republicans tried to revive the emphasis on spending reform that had been an early focus of President Reagan. For example, Reagan fought to eliminate the departments of Education and Energy. In May 1995, the House approved a budget plan calling for the elimination of the departments of Education, Commerce, and Energy. At the time, the House determined that each of these departments was wasteful, ineffective, and unconstitutional. Indeed, the GOP presidential platform in 1996 stated: “The federal government has no constitutional authority to be involved in school curricula … this is why we will abolish the Department of Education.”
It’s true that many of the budget cuts of Reagan and of the GOP in the mid-1990s did not last very long. But at least they were pushing in the right direction. By contrast, President Bush has sought large spending increases for the Department of Education, for example. Education outlays increased from $36 billion to $61 billion in just the last three years.
A sharp contrast is evident when comparing Reagan and Bush on spending. While both boosted defense outlays during their first three years in office, Reagan offset that increase with a 13 percent cut in real discretionary nondefense spending. By contrast, Bush has increased nondefense spending by more than 20 percent in real terms.
Reagan was not able to follow through on many of his cuts because of solid opposition by the Democratic House. In the 1990s, President Clinton was an obstacle to many cuts, despite his conservative rhetoric. But today, Republicans have the White House and a majority in Congress and should be moving ahead with these long-sought reforms.
Instead, they have moved in an anti-reform direction in many cases. For example, they have turned their back on past Republican efforts to reform agriculture subsidies. The farm bill signed into law by President Bush in 2002 represented a reversal of the Republican 1996 Freedom to Farm Act. The 1996 Act had sought to finally wean farmers off federal price supports and subsidies. But the new farm bill embraced price supports and boosted farm subsidies.
The culture of spending seems to have prevailed over the current Republican Party. In his initial budget plan in 2001, President Bush noted: “For too long, politics in Washington has been divided between those who wanted Big Government without regard to cost and those who wanted Small Government without regard to need.” Three years later it is clear that Bush has embraced Big Government without regard to cost.
Looking ahead, Republicans need to rediscover the reforming spirit that they brought to Washington after the landmark 1994 congressional elections. For their part, fiscally conservative Democrats should challenge the big spending Republicans, and work to cut unneeded defense and non-defense programs. To begin getting the budget under control, an immediate freeze should be imposed on discretionary spending. That should be followed by eliminations of low-priority domestic programs, cutting waste in the defense budget, and implementing reforms to the elderly entitlements to diffuse the fiscal time bomb that is waiting to explode on the coming generation of young taxpayers.