June 19, 2003

June 19, 2003 | Commentary on Taxes

Balancing the Books

Some lawmakers say it so often, you'd think it was a mantra: We can't afford to cut taxes, because doing so would increase the federal deficit.

After a tax-cut measure passed the House of Representatives recently, Rep. Martin Frost, D-Texas, claimed the bill's sponsors wanted "to spend $82 billion of the Social Security Trust Fund and drive America even deeper into debt." Sen. Olympia Snowe, R-Maine, vowed to fight any tax cut that would increase the deficit.

It's true that we're facing a record budget deficit. That's partly because of the brief recession that began just as President Bush was taking office. But the major reason is one that lawmakers don't want to talk about: Their own out-of-control spending.

My Heritage Foundation colleague Brian Riedl has found that the federal government will spend more than $21,000 per household this year-a record amount in peacetime. In fact, Washington will spend $520 billion more this year than it did in 1999. That's a lot more money than the recently enacted tax cut so many lawmakers attacked as being "too expensive."

Where is the money going?

Almost a quarter of the new spending is funding big increases in federal agriculture subsidies (the farm bill), federal health programs (other than Medicare and Medicaid), federal directives on education ("no child left behind") and unemployment compensation.

Another fifth is being spent on defense. And while that seems reasonable in the post-September 11 world, relatively little of that spending is directly linked to the war on terrorism.

Tens of billions more are pouring into a series of small- and medium-sized programs that already receive more than their fair share of government dollars.

Yet even as they throw our money around, many lawmakers say they want to return to a balanced budget. Well, doing so means establishing priorities.

According to Riedl, all Congress has to do is limit the average annual growth of mandatory spending programs to 4.6 percent per year-instead of the 5.6 percent proposed by President Bush-and freeze non-defense discretionary spending at the 2003 level, and we could have a balanced budget by 2008.

Some lawmakers will howl: "Cut 1 percent? Impossible." Nonsense. They've done it before, when self-imposed budget caps forced them to do so, and they can do it again. (And let's remember that we're talking about cuts in the rate of growth, not actual cuts.)

The balanced budget that results would include a prescription-drug benefit for Medicare recipients, would fully fund the President's defense requests, would pay for the recent war in Iraq and would still allow Congress to enact a bigger tax cut than the one that took effect in May.

And further tax relief is critical. Before the government spends a dollar-whether it's used to help a poor family, buy a new weapon or build a highway-it must first tax or borrow that dollar from you and me.

But when the government returns a dollar to taxpayers with the right kind of tax cut (such as a capital-gains cut), it encourages true economic growth. That's because as people work, save and invest, the economy grows. That growth, in turn, boosts tax revenues.

It's exactly that sort of cycle that gave us the budget surpluses of the late 1990s. Of course, back then lawmakers held spending increases to "only" 3.5 percent annually, as opposed to today's 8 percent.

Congress' goal should be to get the economy moving again. Lawmakers can help do this, and balance the budget, if they're willing to curb spending and pass sensible tax cuts.

We just have to set priorities. Clearly, we can't afford not to.

Ed Feulner is the president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office