Fiscal responsibility is a trendy concept these days in Washington. For instance, in the fiscal year 2005 budget, the White House says “the Government must exercise fiscal responsibility by limiting spending growth, focusing on the results of Government programs, and cutting wasteful spending.” And now, congressional Republicans are “exploring” how to curtail spending more than President Bush has proposed. All this newfound rhetoric about fiscal responsibility is welcome. But as Ronald Reagan said, “Trust but verify.”
President Bush’s previous budgets increased spending dramatically, but the administration is arguing that much of the recent increase in non‐defense spending stems from higher homeland‐security spending. Whether or not this is correct, the fact that overall spending has risen so rapidly indicates that no serious trade‐offs are being made in the budget. If the administration and Congress want more security spending they should find significant savings elsewhere in the budget.
And that’s what this budget is supposedly doing, mostly by imposing limits on the growth of non‐homeland, non‐defense spending. But the portion of the budget Bush wants to restrain represents a ridiculously small portion — $386 billion — of the $2.4 trillion budget. In other words, these spending limits are rather meaningless, akin to speed limits in a school zone that only apply to one‐sixth of the cars.
Second, the plan to cut the deficit in half, from $521 billion to $237 billion by 2009, is supposed to be the sign of fiscal responsibility. Yet this is the wrong measure of fiscal responsibility. Congress and the White House should be focusing on reducing the size of government, not just reducing their overspending. Further, the administration has left out some items, such as an additional supplemental for Iraq and Afghanistan, which could hit $50 billion. This alone means that the 2005 deficit, now estimated at $363 billion, will be at least $414 billion.
Also, focusing on the deficit will make it harder to make needed tax changes. For instance, omitted from the budget is a fix for the alternative minimum tax. Moreover, a 50 percent capital investment tax provision was not extended in the Bush budget. Why? It’s likely to make companies move investment from next year into this year to artificially boost the pre‐election economy. This is electoral trickery at the expense of good economics.
Moreover, the president’s fiscal responsibility relies on extraordinary spending restraint from Congress. To that effect, the president has urged Congress to resist adding spending on top of his budget plan and to put “hard caps” on federal spending. Again, this is unlikely. After all, this Congress is responsible for an Omnibus bill jammed with 8,000 earmarked pork projects, such as $725,000 for the Please Touch Museum in Philadelphia and $250,000 for the “Call Me Mister” program at Clemson University. Congress is addicted to pork, and this is unlikely to be cured without a dramatic change in behavior by the White House.
This fiscal constraint assumes that the president will veto a bill that spends too much money, something he has not done since taking office. The fact that he failed to veto this year’s omnibus bill does not help his credibility as a fiscally responsible leader. And, of course, that makes it less plausible that he will fight for his proposed 65 program cuts, most of which are popular with Congress.
It might be easier to believe the White House if it acknowledged its prior mistakes, but it’s not doing that. Indeed, the biggest trick used in this latest budget — to demonstrate the alleged fiscal responsibility of this administration — is the assertion that in fiscal year 2001, the last year of the Clinton administration, discretionary spending unrelated to defense or homeland security soared by 15 percent, and that since President Bush took office the growth rate was reduced significantly. These numbers are based on budget authority, the amount of spending that Congress authorizes each year. The figure that matters, by contrast, is the actual amount the government is spending, which is measured by outlays. The administration has deliberately chosen a less accurate measure of the growing burden of government to camouflage its dismal fiscal track record.
Finally, the White House wants big increases for defense spending and security spending. But hikes in defense and homeland security damage the economy by reducing resources available to the private sector. These outlays may be justified because of external threats. But shouldn’t the administration also use that external threat as a long‐overdue reason to cut waste in the Pentagon?