Politics & Policy

Budget Sense

Bush is setting the right priorities.

It’s hard to overlook the illogical tone underlying much of the criticism of President Bush’s proposed 2004 budget. Ignoring basic arithmetic, opponents say that Washington should spend more on nearly everything — and also reduce its budget deficit.

But the president recognizes that budgets are about setting priorities. Washington has neither the resources nor the know-how to solve every problem, and low taxes and economic growth are the first casualties of a free-spending government. So policymakers must differentiate between necessities and luxuries.

Setting priorities is becoming a lost art. Over the past four years, Congress and the president provided massive spending increases not only for defense and homeland security, but also for education, health research, unemployment benefits, highways, and farm subsidies. That’s a post-inflation increase of $782 billion from 2000 to 2003 over what Washington spent in the previous four years — a hike of $5,000 per household.

In fact, the $73,000 per household spent by Washington between 2000 and 2003 represents the highest spending four-year period in American history, with the sole exception of the World War II period. Stopping this spending spree means setting priorities, and President Bush’s budget sets the right ones.

Washington’s top priority is keeping Americans safe from foreign threat. American military might, whether deployed or merely threatened, can help neutralize the danger posed by al Qaeda, Iraq, and North Korea. Yet the defense budget has dropped from 6% of gross domestic product in the 1980s to just 3%. The president’s proposed increase, from $365 billion to $380 billion, will help to rebuild our military and provide Americans with increased security in a dangerous world.

Keeping Americans safe also requires a long-term investment to defend the homeland against terrorists. It means using intelligence to prevent attacks; protecting America’s borders, ports, water systems, electricity grids, and nuclear power plants; and also being ready to respond to attacks with vaccines and other emergency assistance. If spent effectively, the $3 billion increase the president has proposed for homeland security could help save thousands of American lives someday.

Priority number two for Bush is reducing the tax burden that is holding the economy to a growth rate below 1%. The past three years have seen jobs lost, incomes stagnated, and retirement-funds obliterated. The president proposes accelerating the 2001 income tax-rate cuts, eliminating the “marriage penalty,” and boosting the child tax credit. President Bush also wants to end the double taxation of dividends, expand retirement accounts, and provide business tax relief. Together, these policies should help the economy grow, create jobs, and strengthen the stock market. With so many Americans struggling, pro-growth tax relief is a necessity.

The third priority is keeping the budget deficit as small as possible without sacrificing the first two priorities. Large budget deficits are harmful not because they raise interest rates (the effect is minimal), but because they raise taxes on future generations who must repay the government’s loans.

But reducing taxes can unleash the economic growth needed to balance the budget. Increasing the economic growth rate by just 1% over the next two years would shave almost $800 billion off any budget deficit accumulated over the next 10 years. Minimizing the budget deficit without sacrificing the nation’s top priorities can also be done by reducing wasteful spending. President Bush’s budget limits non-defense, non-homeland security spending to a 4% increase. That’s a good start, but Congress should cut deeper.

Washington could cut the 2004 budget deficit in half and fund top national priorities simply by eliminating the $90 billion spent on corporate welfare, the $20 billion in pork barrel spending, the $20 billion in payment errors, and the $17 billion spent each year that Congress cannot even account for.

Why stop there? Eliminate the obsolete Commerce Department. Devolve the highway program and gas tax to the states. Re-open and reduce last year’s bloated farm bill. Every dollar spent on those programs means a dollar less for defense, homeland security, or pro-growth tax relief.

It’s all about setting priorities.

— Brian Riedl is the Grover M. Hermann fellow in federal budgetary issues at The Heritage Foundation.

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