Politics & Policy

Big Budget

There are some praiseworthy elements, but many of them may be mostly rhetorical.

As Ronald Reagan said in his 1986 State of the Union address, “Keeping America strong is as vital to the national security as controlling Federal spending is to our economic security.” President Bush says he would like to promote both these ends with his FY2008 budget. In his budget message he explains,

The Budget I am presenting achieves balance by 2012. My formula for a balanced budget reflects the priorities of our country at this moment in its history: protecting the homeland and fighting terrorism, keeping the economy strong with low taxes, and keeping spending under control while making Federal programs more effective.

The good news is that, rhetorically, this new budget shows a real reform spirit in its proposed cuts and spending restraints. The bad news is that this administration, which is proposing to spend $2.9 trillion — more than a $1 trillion increase over the 2001 level–never seems able to stop Congress from adding even more spending.

The president wants to balance the budget by 2012. This is quite unlikely, but it doesn’t hurt to try. To achieve this goal, the FY2008 budget would essentially freeze discretionary spending while increasing non-defense spending by 1 percent of non-homeland, non-defense spending over FY2007. However, final 2007 spending levels have not been enacted yet, and the budget assumes a 2007 amount that OMB officials admit is incorrect. The end number will end up being quite different from, and larger than, the one announced here.

Once again this year, the administration has left out important items from its calculation. To the administration’s credit, for the first time it has attempted to show the true cost of the wars in Iraq and Afghanistan in the coming fiscal year–$145 billion–making the process more transparent. However, it only budgets $50 billion for these wars in FY2009 and nothing past that date.

Also, omitted from the budget once again this year is a long-term fix for the alternative minimum tax (AMT). The explanation for such an omission must be that, to balance his budget, the president is counting on increased revenue from the AMT, which will hit many more American households in future years than it has in the past.

This year, President Bush is again calling for the elimination of, or cuts to, 141 discretionary programs. The list of cuts is slightly different from last year’s list and would save taxpayers $12 billion. However, not much faith should be placed in these savings. Last year’s list would have saved $14.7 billion but has become largely moot because the GOP Congress failed to pass 9 of the 11 spending bills. Similarly, only 5 out of the 160 spending cuts requested by the president in FY2006 were enacted.

The defense budget will reach an all-time high. The budget provides $481 billion for the Department of Defense’s FY2008 budget. That’s a 62 percent increase over the FY2001 defense budget and a 10-percent increase over FY2007 levels. One would think that this amount would allow the Pentagon to fight the Iraq and Afghanistan campaigns. Yet it doesn’t. And this figure of a 10-percent increase takes into account neither the $93.4 billion in supplemental funding in this current fiscal year nor the projected FY2008 supplemental funding of $141.7 billion for the Iraq and Afghanistan campaigns, which is requested in the same document on the FY2008 budget.

Certainly, our troops in Iraq deserves all the dollars appropriated for them. However, we shouldn’t forget that the defense budget is not impervious to wasteful spending. Shouldn’t the administration also use external threats to cut waste in the Pentagon more aggressively?

There is good news in this budget, however. This year, the president has launched an ambitious and needed attempt to slow the growth of entitlement programs, with Medicare and Medicaid the principal targets. As Brian Riedl at the Heritage Foundation explains, “Whether the 2012 budget deficit is projected to be $50 billion or $0 is not the most vital issue of America’s long-term prosperity. What matters most is the impending retirement of 77 million baby boomers that will trigger a $39 trillion tsunami of unfunded entitlement costs over the next 75 years.” According to Riedl, “President Bush has taken an important step by offering Medicare reforms that will reduce Medicare’s unfunded liability by a full $8.1 trillion — which is one-quarter of the program’s entire 75-year shortfall. And it does so with reforms focusing mostly on the wealthiest Medicare Part B and D participants.”

Under the proposed budget, Medicare would grow at 6.7 percent over the next decade, instead of 7.4 percent. It’s certainly a small step in the right direction. And for those who fear that the Democratic Congress might oppose this reform, let me remind you that the proposed savings fall short of the cuts made in the 1997 balanced-budget law passed by the GOP Congress and signed by President Bill Clinton.

–Veronique de Rugy is resident fellow at the American Enterprise Institute .


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