The Heritage Foundation

Executive Summary #1581es on Federal Budget

September 4, 2002

September 4, 2002 | Executive Summary on Federal Budget

Executive Summary: How Washington Increased Spending by Nearly $800 Billion in Just Four Years

Full Text

As the 107th Congress moves closer to completing the fiscal year 2003 budget, a disturbing pattern of budgetary recklessness is emerging. If current estimates hold, the 2000-2003 period will prove to be one of the highest-spending four-year periods in American history--well above the previous 1996-1999 and 1992-1995 periods. In fact, from 2000 to 2003:

  • The federal government will spend $782 billion more than it did during the previous four years--the largest four-year increase since the 1984-1987 period (in 2001 dollars adjusted for inflation);
  • The four-year cost of the federal government will be over $73,000 per household--a total surpassed only at the height of World War II--and over $5,000 per household more than during the previous four years (see chart);
  • For the first time since President Lyndon Johnson's Great Society initiative expanded entitlement programs over 30 years ago, discretionary spending programs will receive even larger increases over a four-year span than those bloated entitlement programs will; and
  • These colossal spending increases are occurring despite the plummeting of net interest payments by $247 billion over those four years.

 

Contrary to popular belief, the war on terrorism is responsible for only a small portion of the spending increase. Only 21 percent of the $782 billion spending increase is allocated to defense, and less than a quarter of that defense increase can be directly attributed to the war on terrorism.

The 2000-2003 spending spree is a classic case of death by a thousand blows--record spending increases for dozens of medium-sized programs across several departments, none by itself fatal but collectively all lethal. Some of the largest spending increases have been granted to traditionally low-cost programs. For example:

  • Agriculture spending is growing from $57 billion over 1996-1999 to $117 billion over 2000-2003;
  • Health programs (other than Medicare and Medicaid) are growing from $127 billion over 1996-1999, to $190 billion over 2000-2003;
  • Education spending is growing from $128 billion over 1996-1999 to $170 billion over 2000-2003; and
  • Unemployment compensation payments are growing from $100 billion over 1996-1999 to $150 billion over 2000-2003.

These increases are not the result of a decision by Congress and the President that a few high-priority programs are worth $782 billion in new funding. Even lower-priority programs, such as the Denali Commission, Power Marketing Administration, Bureau of Export Administration, Foreign Agriculture Service, and Neighborhood Reinvestment Corporation are receiving massive spending increases. Thus, runaway spending is the predictable result of the refusal of undisciplined policymakers to set priorities and say no to special interests.

Unrestrained spending slows economic growth, which in turn means fewer jobs and lower incomes. For the market to function, government must provide necessary services that the private sector would have difficulty providing, such as defense, law enforcement, and public goods such as roads that facilitate trade. Despite the outdated fallacy that government spending stimulates the economy, beyond this basic level it impedes economic growth for three reasons:

  • Diminishing Effectiveness. As governments expand beyond defense, law enforcement, and public goods into areas such as education, food, housing, and income security, they inevitably block the market from performing its own functions in these areas. Consequently, government becomes increasingly ineffective, until it ultimately becomes a barrier to economic growth.
  • Politics. Markets use the profit motive to ensure that resources will be spent effectively. Governments, by contrast, are monopolies in which the only "profit" to the politicians running the system is re-election. Thus, decisions on government spending are often driven by politics, not by efficiency.
  • High Taxes. Increased government spending raises taxes for working families, making it more difficult for them to afford necessities such as food, housing, and health insurance. Furthermore, these taxes reduce the financial rewards for working, saving, and investing--behaviors that increase economic activity and cause the economy to grow. As families and business cut back these behaviors to avoid taxes, the entire economy falters.

Unless Congress and the President make a concerted effort to address runaway spending, families will continue to have difficulty making ends meet, and the economy will struggle under the suffocating weight of an ever-expanding federal government.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. 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