September 2, 2003

September 2, 2003 | Commentary on Federal Budget

Wake-Up Call on Spending

The Congressional Budget Office's latest projections should serve as a wake-up call to fiscal conservatives in Congress and the White House. Unless they restrain spending, they will see budget deficits jeopardize the tax-relief agenda and imperil much of the hard-fought progress achieved over the past three years.

The CBO projects deficits of $401 billion in 2003 and $480 billion in 2004, and $1.5 trillion over the decade. Even those estimates exclude the costs of offering a Medicare drug benefit, extending expiring tax provisions and reforming the alternative minimum tax.

Furthermore, they assume that discretionary spending - including defense - will grow no faster than inflation, rather than the typical 7.7 percent annual increase over the past five years.
Factoring in those costs raises the projected annual deficits to between $600 billion and $700 billion through most of the decade.

Where did this expanding deficit come from? A sluggish economy, tax relief and necessary defense spending played a part. But one cannot overlook the largest domestic spending spree since the Great Society. Mandatory spending will reach 11.1 percent of gross domestic product this year, its highest level ever. New pressures on Social Security, Medicare and Medicaid will combine with recent legislation, such as last year's farm bill, to push those costs even higher in coming years.

Nondefense discretionary spending in 2003 will hit 3.9 percent of GDP for the first time since 1985. Yet rather than balancing new homeland security spending with cuts elsewhere, lawmakers ramped up funding for education, health research and dozens of small, low-priority programs. The corporate welfare budget has not been touched, and the number of pork projects has doubled since 2000.

Such spending may be acceptable to President Bush, who has recently been described as a "big government conservative" who couples tax relief with high government spending. But these goals are contradictory. All government spending must eventually be funded with taxes, and budget deficits only delay the inevitable taxes (with interest). This year's $401 billion budget deficit will add $3,774 to the average household's future tax burden. If the budget deficit reaches $600 billion to $700 billion, the annual tax increase will top $6,000 per household. Unless they balance tax relief with spending cuts, Mr. Bush and Congress will leave a legacy of temporary tax relief followed by permanently higher taxes.

Some insist that economic growth alone will solve the deficit problem. It is true that the recent tax rate cuts will aid economic growth and tax revenues by providing new incentives to work, save and invest. But the CBO's dire projections already assume revenue growth of 13 percent in 2005, 10 percent in 2006 and approximately 6 percent thereafter. The economy won't grow the budget into balance any time soon.

Thus far, the public has accepted mild budget deficits as the predictable result of the September 11 attacks and the 2001 recession. As we move further from these events, though, the expanding deficits will become more difficult for people to swallow. White House officials and congressional leaders can't escape blame, and heading into an election year, their opponents surely won't let them off easy.

Lawmakers will now find it difficult if not impossible to further reduce the tax burden on American families. Increasing deficit projections led the normally tax-averse President Reagan to raise taxes in 1982. Mr. Bush may now have to expand more energy-protecting previous tax cuts than proposing new ones. Broad-based tax increases may remain a political "third rail," but class-warfare calls to raises taxes on "the rich" may find an increasingly receptive audience.

The only alternative to tax increases is spending restraint. An obvious first step: Scrap the proposed budget-busting Medicare drug benefit and start over. Now is not the time for the largest expansion of government since the Great Society. Targeted help to poor seniors, combined with real Medicare reforms, makes more sense than creating a new $7 trillion liability that funds many seniors who don't need the benefit.

There are other ways to save money: The $90 billion corporate welfare budget can go, along with an additional $50 billion in waste, fraud and abuse identified by the Heritage Foundation. Create an independent commission to identify outdated and ineffective programs ripe for elimination.

Yes, cutting spending can be difficult. But it sure beats raising taxes.

Brian Riedl is the Grover M. Hermann fellow in federal budgetary affairs in the Roe Institute for Economic Policy Studies at the Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Federal Budget

Appeared in The Washington Times