“What’s the best thing about the president’s budget? What’s the worst thing? What’s your advice to Congress going forward with it?” Those are questions National Review Online posed to a group of budget experts in the wake of the release of President George W. Bush’s new budget. Here’s what they had to say.
At first blush, the president’s proposed budget for Fiscal Year 2007 looks quite restrained. Spending in many areas is either flat or cut: Department of Agriculture–down 3 percent; Department of Energy–down one percent; Department of Education–down by 23 percent!
That’s the good news. The bad news is that these cuts are relative to last year’s record-breaking spending levels. In any historical context, the Bush budget is still far too big.
The president’s budget for Fiscal Year 2007 (which will be begin October 1) proposes aggregate federal spending that is 49-percent higher than in 2001 (the last Clinton budget). While the president is calling for spending at the Department of Education to be reduced by 23 percent versus last year, it would still be 81-percent higher than in 2001. That’s a faster rate of growth than defense spending. And under Bush’s budget, the Department of Education will spend more in 2007 than it did in the entire second term of the Reagan administration.
This rampant spending growth during the Bush years is the cause of our current large federal budget deficits (which had been vanquished in the late 1990s). The president’s budget projects a deficit in 2007 of $354 billion. If President Bush and the Republican Congress had merely held federal spending growth to 4 percent annually since 2001, the president would instead be projecting a surplus of $58 billion.
In his “Budget Message,” President Bush writes, “Last year, I proposed to hold overall discretionary spending growth below the rate of inflation–and Congress delivered on that goal.” The president’s own budget numbers reveal this claim as false. Total discretionary outlays for Fiscal Year 2005 were $968.5 billion, and in 2006, they are projected to be $1,032.1 billion; an increase of 6.6 percent (far higher than the rate of inflation).
Chastened by an angered base, congressional Republicans will hopefully not make the same mistake of past years when they added to the Bush’s proposed spending levels. The federal budget has exploded during the Bush years. It’s time for Congress to take the lead–as it did in 1995–and start bringing Washington down to a more appropriate size.
Senator Tom Coburn
Although President Bush’s budget includes a sound plan to fight the war against terrorism, it gives Congress too much room to indulge in wasteful spending and avoid tough decisions about priorities.
As long as Congress refuses to do the relatively easy task of shutting down its earmark favor factory, it will never do the hard work of reducing the deficit and securing Social Security and Medicare for future generations. Some politicians who claim we can cut the deficit in half by 2009 also promised surpluses as far as the eye could see a few years ago. Optimistic predictions about tomorrow require bold leadership and sacrifice today.
While many of the president’s budget-enforcement proposals, such as tightening the definition of emergency spending, are important steps, the most effective budget enforcement tool is a presidential veto. If Congress continues its addiction to earmarking–a root cause of Congress’ culture of fiscal irresponsibility–the president should use his veto power and not give tacit approval to a practice most taxpayers find indefensible.
Veronique de Rugy
In FY2007 the president wants to spend $2.77 trillion. That’s $909 billion more than when Bush took office six years ago. His budget will add $18 billion for hurricane relief on top of the billions already blanketing the affected regions, as well as wasteful proposals such as $56 million to initiate construction of the Alaska Region Research Vehicle and $55 million for activities during the International Polar Year.
Since in power, President Bush has increased total spending by 48.7 percent. Defense spending increased by 67 percent while non-defense spending increased by 49 percent. But things are getting worse with each passing year. This year alone, total spending is schedule to increase by at least 9.6 percent. And total spending as a percentage of GDP went from 18.4 percent when President Clinton left office to 20.8 percent in 2006. That’s the highest in 12 years and a sad record for this administration.
The good thing in this year budget is the rhetoric. Throughout the budget we are told that we are right back on the road to fiscal responsibility. The bad thing is that this budget is all talk and no action. For instance, the president proposes to save $14.5 billion by cutting 140 wasteful programs. These cuts represent 0.5 percent of the $2.77-trillion budget. Last year, he proposed about $16 billion in savings and got $6.5 billion from Congress–40 percent of the amount requested. So if history is any guide, President Bush will do nothing to defend his proposed cut and he’ll be lucky if he gets $5.8 billion in savings, which is about 0.2 percent of the total budget. That’s nothing.
Second, the administration wants to freeze non-homeland non-defense spending. But the portion of the budget Bush wants to restrain represents less than 1/6th of a $2.77 trillion pie. These spending limits are meaningless.
Third, Bush proposes to cut about $36 billion out of Medicare over five years. Medicare spending over that period will be $2.6 trillion. So the alleged entitlement cuts represent one and a half percent of Medicare spending. That’s hardly a revolution.
Congress and the White House should stop obsessing about cutting the deficit like they have done in the last three years. It is the wrong measure of fiscal responsibility. Instead, they should focus on reducing the size of government (spending), not just the part financed by borrowing. The only way to do that is for President Bush to finally get his veto pen out and start using it aggressively against a pork-addicted Congress.
The Best: President Bush is a determined tax cutter. His new budget calls for making his prior tax cuts permanent, and it includes some new reforms such as expanding health savings accounts.
Bush gave us income tax cuts in 2001, business investment tax cuts in 2002, dividend and capital gains tax cuts in 2003, and corporate tax cuts in 2004. These tax bills had flaws, but they included many pro-growth reforms.
Remember that Ronald Reagan delivered one big tax cut in 1981, but in later years agreed to increases in corporate taxes, gasoline taxes, and payroll taxes. To his credit, Bush has stood firm and resisted class-warfare advocates and deficit hawks who demand tax increases.
However, the new budget highlights two big problems with the administration’s tax agenda. First, the administration has cast aside fundamental tax reform–even though Bush’s own tax commission started the ball rolling on reform with its solid report in November.
The Worst: Second, Bush’s tax cuts may go up in smoke if spending keeps rising. The 45 percent increase in federal outlays since 2001 has created huge deficits, which will likely still exceed $400 billion when the next president comes into office. For a President Hillary Clinton, a tax hike to “solve” the deficit problem would be a no-brainer. But even a new conservative president will feel pressure to increase taxes, perhaps after agreeing to a “bipartisan budget summit” like the one in 1990.
Advice to Congress: The Bush budget is sprinkled with modest spending trims and talk about making programs work efficiently. But it is missing any overarching small government themes such as giving power back to the states, privatization, or cutting corporate welfare.
It is left to reformers in Congress to challenge Big Government in a more fundamental way. They need to start talking about defunding whole areas that should be left to the states or private sector, such as highways and manned space flight.
With entitlement costs exploding, future budgets can’t be standstill budgets like Bush’s. They will have to contain big cuts. But the earlier we start the cuts, the harder it will be for President Clinton to soak us with tax hikes that dwarf the other President Clinton’s tax hikes of 1993.
–Chris Edwards is tax director at the Cato Institute and author of Downsizing the Federal Government.
The best thing about the president’s budget is his call to make permanent the key parts of his 2001-2003 tax reductions that are due to expire, and his proposals to enhance saving incentives.
The current income tax is heavily biased against saving and investment. There is generally only one layer of federal income tax on income used for consumption (except for a few federal excise taxes). But if you save your income, the Feds tax the interest, dividends and capital gains (layer 2–the basic income tax bias against saving). If you buy corporate stock, there is the added layer of the corporate tax (layer 3). If you keep enough in old age to cover a few years in an assisted living facility, you face the death tax (layer 4). We need to repeal the death tax, end the double taxation of corporate income, and give all saving the tax relief available in pensions (either defer the tax on saving, or treat it like a Roth IRA).
President Bush calls for extending the 15-percent tax rates already in place for dividends and capital gains. The 15-percent cap, due to expire in 2009, is essential to reduce the double taxation of corporate income and encourage capital formation, which in turn boosts productivity and wages. The 15-percent cap has caused a surge in dividend payments and capital gain realizations, which have given the Treasury a burst of revenue. The president also wants to make permanent the marginal tax rate reductions that will otherwise expire in 2011. He wants to repeal the death tax permanently. It is scheduled to return in force in 2011. The president would also consolidate and enlarge the contribution limits on various savings arrangements that offset the basic tax bias against saving.
The worst feature of the budget is that is does not slash federal spending on a wide range of programs that should be handled by the private sector or by lower levels of government.
Congress should cut spending and enact the tax extensions. Failure to enact the tax extensions would jeopardize the economic expansion and devastate the budget.