Cato Policy Analysis No. 173 June 19, 1992

Policy Analysis

Crisis? What Crisis?
George Bush's Never-Ending Domestic Budget Build-Up

by Stephen Moore

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


Executive Summary

Ever since the riots in Los Angeles, critics of the Bush administration have been complaining that it is not spending enough money to solve America's urban problems. According to that assessment, Bush, carrying on the Reagan tradition, is neglecting a wide array of unmet social welfare needs--in education, low-income assistance, job training, housing, and health care. It is not just pro-spending special interest groups that are chastising Bush for his supposed frugality. In March 100 prominent economists, including 5 Nobel laureates, proposed that "to stimulate vigorous economic recovery," the president should launch a "$50 billion a year program of federal assistance to state and local governments emphasizing public investment in education and infrastructure."(1)

Unfortunately, if there is one thing the Bush administration does not need to be prodded to do, it is to spend and borrow money. Bush has been increasing real federal domestic expenditures by 8.7 percent per year, a faster rate of growth than under any previous president since John F. Kennedy.(2) Since 1989 Bush has also run up bigger deficits, both in dollars and as a percentage of GDP, than any other post-World War II president. If massive growth of government and multi-billion-dollar deficits were the solution to America's economic problems, the nation would be basking in unprecedented prosperity, and Bush would be widely acclaimed as an economic miracle worker.

In February 1991 a Cato Institute Policy Analysis first called attention to the rapid build-up of domestic spending during Bush's first two years in office.(3) This study reveals evidence that there had been virtually no slowdown in Bush's domestic spending spree. In fiscal year 1992 federal outlays will rise to $1.5 trillion, 8 percent above inflation. Federal spending will consume a post-World War II record 25.2 percent of gross domestic product this year. In other words, the 1990 budget agreement and the $200 billion tax increase have done nothing to slow the Bush spending binge. If anything, they have accelerated it. Ten damning details of Bush's fiscal policy mismanagement follow.

1. From the time of Bush's inauguration through the end of this year the domestic portion of U.S. government spending, after accounting for inflation, will have risen by $175 billion. That is a 28 percent real expansion in just three years. Excluding the cost of the savings-and-loan bailout, domestic programs are still up roughly 24 percent in real terms.

2. No president in the last quarter century has increased spending by so much so rapidly. The 8.7 percent rate of annual increase in the real domestic budget under Bush earns him the distinction of being the biggest spender to occupy the Oval Office since John Kennedy. This administration is spending at twice the rate Jimmy Carter's did. (Ironically, vice presidential candidate Bush helped skewer Carter as a liberal big spender in 1980.)

3. Costs of domestic programs are rising almost across the board. Since 1989 appropriations have risen 48 percent for the Departments of Commerce and State, 22.5 percent for the Department of Energy, 36 percent for the Department of Housing and Urban Development, and 32 percent for the Department of Transportation. Appropriations for the Departments of Labor and Health and Human Services have increased by an astronomical 63 percent.

4. The big lie in Washington in the 1990s is that the federal government is underinvesting in infrastructure, education, children's programs, and other war-on-poverty-programs. Since 1989 real spending has risen 8 percent for education, 11 percent for highways, 58 percent for Head Start, 46 percent for food stamps, and 18 percent for child nutrition. In short, Bush has been a generous benefactor of the Great Society.

5. The Bush administration and the 102nd Congress have even increased the budgets for programs that have the lowest priority. The budgets of 30 major programs that the Reagan administration had proposed terminating in the early 1980s--including the Small Business Administration, the Export-Import Bank, the Job Corps, and the Corporation for Public Broadcasting--will have risen by an average of 44 percent through 1993. Bush has requested many of those increases.

6. It is not true that Bush is an innocent victim of a Democratic-controlled Congress. Without question, this is a free-spending Congress; however, Bush has been requesting big budget increases. His latest budget (for FY 1993) requests spending increases of more than 10 percent for the Departments of Education, Housing and Urban Development, Justice, State, and the Treasury. The Bush budget would increase spending for virtually every domestic purpose above the inflation rate; only defense spending would fall.

7. In three years Bush has not vetoed a single spending bill sent to him by the Democratic Congress because it cost too much. Clearly, the spending epidemic in Washington begins in the White House.

8. Federal borrowing continues to skyrocket under Bush, reversing the progress that had been made in deficit reduction from 1986 to 1989. When Bush became president, the Gramm-Rudman-Hollings path was supposed to bring the federal deficit down to $64 billion in 1991, $28 billion in 1992, and $0 in 1993. Instead, the deficit was $280 billion in 1991, and it will be $400 billion in 1992 and $350 billion in 1993.

9. By veering off the Gramm-Rudman-Hollings track and then abandoning that spending control mechanism altogether in 1990, Bush has increased the federal debt by $1 trillion over what it should have been. As a result, the federal debt will reach $4 trillion this year.

10. The Democrats' standard line--that large deficits are a result of the Reagan defense build-up and tax cuts--no longer has even a glimmer of truth to substantiate it. Defense spending as a share of GDP is now lower than it was before Reagan became president, and tax revenues as a share of GDP are exactly at their 1979 level of 19 percent. The increase in the deficit in the 1990s has been due to Bush's raising domestic outlays from 13 to 16.5 percent of GDP in three years.

Bush's mishandling of fiscal policy is reflected in the poor performance of the U.S. economy. Under Bush, through the end of 1991, the U.S. economy grew at a paltry 0.3 percent per year. That is the lowest economic growth rate under any president since Franklin D. Roosevelt. It is more than coincidence that, under big-spending Bush, the economy is not doing well.

Clearly, the key to restoring U.S. prosperity is not some scheme to spend more federal money and drive the national debt up further into the stratosphere. Bush has tried that strategy, and it has produced woeful results. The road to prosperity is to aggressively, and rapidly, cut government spending and substantially reduce the tax burden on American businesses and workers. In short, economic revival depends foremost on shifting "Bushonomics" into reverse.

Full Text of Policy Analysis No. 173 (HTML)

1992 The Cato Institute
Please send comments to webmaster