Foundation

Secure Economic Growth Tomorrow by Freezing the Budget Today

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     President Bush has submitted a $2.4 trillion budget for 2005 designed to ease conservative misgivings over out-of-control spending and budget deficits. Bush wants to hold non-defense discretionary, non-homeland security, spending to a 0.5 percent increase, hike defense spending by 7 percent, and increase homeland security spending by nearly 10 percent. Although the President plans to cut the budget deficit in half as a percentage of GDP, this would require levels of spending restraint unseen in Washington recently. Rather than further increasing the size of the budget as Bush proposes, real budget cuts – or at least an overall spending freeze – are essential to securing the future of President Bush's tax cuts and ensuring that the spiraling costs of the new Medicare entitlement do not lead the nation to bankruptcy.

Bush's 2005 Budget Proposal: An Exercise in Restraint?

     After the unprecedented run-up in spending over his first three years in office, President Bush's budget is an attempt to restore his credibility on spending restraint via the elimination of 65 programs costing about $4.9 billion annually. That is a considerable sum and complete elimination of any government program is a victory for taxpayers, but the savings represent only two-tenths of 1 percent of the federal budget. There is still 17 times more new spending in the budget than cuts. If the $50 billion "supplemental" that Bush plans to ask for after the election to pay for ongoing operations in Iraq and Afghanistan were included, the President's new-found "restraint" would look more like recent profligacy, with growth rates close to 5.65 percent (more than three times the expected rate of inflation). [1]

     Rather than fueling spending growth at a greater rate than was allowed by any of the previous four administrations, the President should work actively with Congress to at the very least freeze total outlays – including the $50 billion needed for Iraq and Afghanistan in the budget – immediately. [2] A budget freeze or a genuine budget cut may seem drastic, but with a $520 billion deficit and rumblings among some Republicans that a tax hike is in the works, an across-the-board strategy is long overdue. The fate of Bush's tax cuts is critical to continued economic growth, but spending on the recently passed Medicare prescription drug benefit – the costs of which are skyrocketing before the plan has even taken effect – makes fiscal prudence more important than ever. [3]

     Though very different in nature, the prescription drug benefit and permanence of the tax cuts are two issues with significant budget implications that make short-term spending restraint essential. Bush's tax cuts have been good for the economy and they acted as an economic boost to help make the recent recession one of the shortest and mildest in history (a fact that is surprising given the stock market bubble and the terrorist attacks of September 11). However, a majority of the actual impact of Bush's tax cuts has not even taken effect yet. In fact, extending all of the tax cuts (and the other expiring provisions in the Tax Code), which are set to expire by 2011, would reduce revenues on a permanent basis by 2.5 percent of GDP. [4] Given the recent lack of spending restraint and the imminent explosion of drug benefit spending as indicated in the chart to follow, something has to give. Of course it would be better for the economy and President Bush's legacy if what "gives" is spending, not elimination of the President's prized domestic tax initiative.

     President Bush is predicting that the budget deficit will be cut in half as a percentage of GDP by 2006, but this slight reduction should not be construed as the beginning of a long-term decline in the deficit. Assuming that no new mandatory programs are created, President Bush's tax cuts are made permanent, and the Alternative Minimum Tax (AMT) is at least indexed to inflation, the federal government would face deficits of 3 percent of GDP or more over the next ten years. [5] Even so, indexation won't completely tame the AMT, which will ensnare nearly 32 million taxpayers by 2010 (including 9 out of 10 taxpayers who make over $100,000) – more than 20 times the number who paid in 2000. [6] Worse, after 2013, the budget will likely begin to deteriorate at an accelerated pace as entitlement spending picks up and the Social Security surplus shrinks and turns into a deficit.

From Near Elimination to Massive Appropriation

     Promises to cut spending and reduce the size of the federal government were integral to achieving a Republican majority in Congress nearly ten years ago, but times have changed. Unfortunately, profligacy has become a trait common to both parties. A serious effort to eliminate agencies and programs that are as unnecessary now as they were 10 years ago could be a huge morale boost for movement conservatives that form the base of President Bush's party. With Republicans in control of both Houses of Congress and the Presidency, targeting the Departments of Energy, Commerce, and Education, as well as AmeriCorps, the National Endowment for the Arts, and the Corporation for Public Broadcasting for elimination would be wise fiscally and politically.

     The Department of Education is one federal agency that conservatives have justifiably eyed for termination over the years. President Reagan made a campaign pledge to eliminate the agency and submitted a budget that would have dismantled it, but Democrats who controlled Congress at the time refused to do so. Again, the agency was targeted for elimination in the 1996 Republican Party platform, which stated that the Education Department "has no constitutional authority to be involved in school curricula or to control jobs in the marketplace." Between 2002 and 2004 alone the agency has seen its funding increase by nearly 70 percent. [7] This is a hefty increase for an agency that makes the National Education Association (in the labor group's own words) "the only union with our own Cabinet department." [8]

     Bush has also increased real, inflation-adjusted spending for the Departments of Energy (an agency slated for elimination by both Newt Gingrich and Bob Dole), Health and Human Services, Interior, Justice, Labor, State, and Veterans Affairs by double-digit amounts. [9] Over the past two years alone, funding for the National Endowment for the Arts is set to rise from $115.7 million to $139.4 million in FY 2005, an increase of more than 20 percent. Even given the current deficit in excess of $500 billion, President Bush felt the need to propose a 15 percent hike in the art agency's budget, the largest increase in 20 years. [10]

     AmeriCorps is another government program that has long been rightly criticized by conservatives for its fiscal mismanagement and reliance on paid "volunteers." Since President Clinton originally proposed this program to the dismay and derision of Republicans everywhere, AmeriCorps would seem to be a prime target for elimination. Instead of ending the program however, President Bush and Republicans in Congress have allocated a massive expansion. In fact, the 2004 budget contained an 80 percent single-year increase for AmeriCorps, the largest appropriation for the program since its inception. [11]

     Not included among the 65 programs Bush plans for elimination is the Corporation for Public Broadcasting (CPB). This government subsidized media outfit received a $350 million federal appropriation in 2002 and will see that amount rise to $390 million if Bush's 2005 budget is adopted. [12] Recently, Joan Kroc, the widow of McDonald's restaurant entrepreneur Ray Kroc, donated $200 million to National Public Radio, a recipient of CPB funding. With public broadcasting flush with cash and the federal government suffering from large deficits, ending this annual $400 million taxpayer giveaway to affluent consumers of CPB programs is elementary.

The Defense Budget: Bigger is Not Always Better

     Perhaps the most erroneous notion advanced by President Bush and many in Congress since the terrorist attacks of 9/11 is that large increases in defense spending are essential to winning the war on terror. The President's 2005 budget proposal includes a 7 percent up-front increase in defense spending that would be further augmented by another $50 billion in the form of a post-election supplemental. [13] Congress has already approved $166 billion for these ongoing operations, including $87 billion last year. However, if the $50 billion were properly accounted for as additional defense spending in the President's budget request, defense spending would leap by more than 20 percent under Bush's budget 2005 budget plan.

     Unfortunately, far too much of our nation's defense spending is either frittered away or spent in ways that have nothing to do with the war on terror. Realigning spending priorities may indeed take time, but in light of massive deficits, our nation cannot afford to spend billions of dollars on unneeded weapons systems. The recently announced decision to eliminate the Comanche helicopter program was a good start and it will save tens of billions of dollars in future costs. Elimination of the Crusader artillery program a few years ago – as suggested by the National Taxpayers Union – was also a step in the right direction, but large portions of the military budget are still geared to fighting a nonexistent Soviet threat, not the war on terror.

     The 2005 budget proposes to spend billions on weapon systems like the F-22 ($4.7 billion), the Joint Strike Fighter ($4.5 billion), and the Osprey tilt-rotor aircraft ($1.7 billion). [14] Each of these programs was originally developed to fight a threat that no longer exists, while the Osprey has been plagued by crashes during its development, killing a total of 30 men. The General Accounting Office has called the Osprey "far less reliable" than it needs to be for active service. [15] The Virginia-class submarine, SSN-774, ($2.7 billion) is yet another weapons system that could be eliminated in light of our existing fleet of SSN-668 Los Angeles-class vessels that is unquestionably the best in the world. President Bush himself called for the program's cancellation in a 1999 speech at the Citadel. [16] Clearly, rampant misallocation of resources is a serious problem within the defense budget. Several unnecessary multi-billion dollar programs are flush with cash while troops in Iraq experience daily shortages of basic, inexpensive equipment like night goggles and body armor.

     President Bush and Secretary of Defense Rumsfeld should, as part of their ongoing "Pentagon transformation" effort, seriously reconsider manpower deployment worldwide. The United States has 72,000 troops stationed in Germany, 41,000 troops in Japan, 13,000 in Italy, and 11,000 in the U.K. These troops, based in some of the most stable nations on earth, are enough to more than double our troop deployments in Iraq. Rather than asking for another $50 billion after the election, President Bush would be better served by redeploying these overseas troops in the war on terror and closing their former bases to save taxpayer money. On the home front, the President needs to continue leading the charge for another Base Realignment and Closure Commission to create savings by closing military facilities the Pentagon says are no longer necessary for our national security.

     The fact is that – given the nature of conventional military threats – America has yet to optimize its defense spending. Although military advocates hail the fact that defense spending in the 2005 budget proposal represents "only" 3.6 percent of the U.S. gross domestic product (up from 2.9 percent of GDP in fiscal year 2000 but down from 8.9 percent in 1968), this level of spending has allowed America to build a military that is far beyond the capabilities of any other nation. [17] In fact, no nation or group of nations could come close to matching the amount of resources the U.S. pours into defense.

Conclusion

     Clearly, spending can indeed be cut without harming either our national security or government's role in providing a safety net for its least-well-off citizens. The problem is one of vested interests steering massive amounts of money into programs they hold dear and benefit from handsomely, right under the noses of taxpayers and even some in Congress. Whether it is the elimination of just one federal agency, several smaller programs like the NEA, or of unnecessary troop deployments, President Bush and Congress can do better than they have in recent years to control spending. President Bush's 2005 budget proposal has some good elements, but it still contains too much spending. Taxpayers need elected officials to try harder. Our not-too-distant futures are at stake.

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1 Eric Schmitt and Robert Pear, “Plan Omits Costs in Iraq and Afghanistan,” The New York Times, February 3, 2004.

2 Scott Hodge, "The President's FY 2005 Budget in Perspective," Tax Foundation, February 4, 2004, http://taxfoundation.org/ff/FY2005perspective2.html.

3 Larry Wheeler, "Budget Buoys Defense," Florida Today, February 2, 2004, http://www.floridatoday.com/!NEWSROOM/localstoryN0203BUDGET.htm.

4 William Gale and Peter Orszag, "The Budget Outlook: Analysis and Implications," Tax Notes, October 6, 2003, http://www.brook.edu/dybdocroot/views/articles/gale/20031006.pdf.

5 Ibid.

6 Mark Schwanhausser, "Alternative Minimum Tax: Taxpayer Enemy Number 1," San Jose Mercury-News, February 6, 2004, http://www.mercurynews.com/mld/mercurynews/business/special_packages/tax_guide/7892263.htm.

7 Veronique de Rugy and Marie Gryphon, "Elimination Lost," National Review Online, February 11, 2004, http://www.nationalreview.com/comment/derugy_gryphon200402110914.asp.

8 Stephen Moore, "Struggling With an Education Crisis," The Institute for Policy Innovation Newsletter, Insights, September 1999, page 5.

9 Veronique de Rugy and Tad DeHaven, "On Spending, Bush is No Reagan," Tax & Budget Bulletin, August 2003, http://www.cato.org/pubs/tbb/tbb-0308-16.pdf.

10 Jeff Gannon, "Bush Increases Funding for the Arts," Talon News, January 30, 2004, http://www.talonnews.com/news/2004/january/0130_bush_nea.shtml.

11 Save AmeriCorps.org, Policy Brief, January 22, 2004, http://www.saveAmeriCorps.org/legis.htm.

12 Corporation for Public Broadcasting web site, "CPB Appropriation History," http://www.cpb.org/about/funding/appropriation.html.

13 George Edmonson, "Defense Plan Up 7 Percent," The Atlanta Journal-Constitution, February 4, 2003.

14 Ibid.

15 General Accounting Office, "Defense Acquisitions: Readiness of the Marine Corps' V-22 Aircraft for Full-Rate Production," February 20, 2001, http://www.globalsecurity.org/military/library/report/gao/gao-01-369r.htm.

16 Representative Jan Schakowsky, "Facts: 2005 Defense & Military Spending," http://www.house.gov/schakowsky/Fact_Iraq_Budget_FY05.html.

17 Drew Brown, "Defense Budget Doesn't Include Funds for Iraq, Afghanistan," Knight Ridder/Tribune Newspapers, February 2, 2004, http://www.realcities.com/mld/krwashington/7858468.htm.


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