Finally, a Tighter Budget from Bush

Posted: Feb 07, 2006 3:35 PM

WASHINGTON -- There's much to like in President Bush's 2007 budget proposals, which would slow the increase in overall federal spending to a little more than 2 percent. If Congress reduces spending to anywhere near this modest amount, it would be an astounding feat, especially in a hotly contested election year when lawmakers don't like voting for vote-killing budget cuts.

Total federal spending has been increasing by between 4 percent and 8 percent a year under Bush's presidency. Much of it is in response to huge catastrophic events that have cost a lot of money -- the terrorist attacks, the wars in Iraq and Afghanistan, homeland security, sharply higher defense spending and last season's devastating hurricanes.

But a lot of it was also due to greedy lawmakers who stuffed the budget with tens of billions of dollars in earmarked pork-barrel spending for their folks back home and lawmakers' collective failure to reform, eliminate or prune ineffective, wasteful, redundant or outdated programs.

Bush, too, must assume some responsibility for this because he refused to exercise his veto on spending bills that were filled with pork. (The recent highway authorization bill contained 6,371 earmarks costing $25 billion.)

The budget's growth during Bush's presidency has been breathtaking, It was close to $2 trillion when he came into office and has shot up like an Atlas rocket ever since.

In fiscal 2005, total spending was at $2.47 trillion and counting. By fiscal 2006 it surged to an estimated $2.71 trillion, triggering anger from Bush's conservative base that threatened to divide his party. White House political adviser Karl Rove warned in private that Bush had to be seen dealing with rising spending or risk erosion in the GOP's grassroots.

Bush is doing just that. His fiscal 2007 budget, which begins this Oct. 1, would raise overall spending to $2.77 trillion, a 2.3 percent increase.

If the Republican Congress can hold spending at this level, it would be the smallest one-year increase of his presidency and represent a sharp brake on future nondefense discretionary expenditures.

His budget's biggest discretionary spending increases (appropriations that are made each year) are for defense and homeland security, designed to keep us safe from another attack.

But he offsets these increases with cuts elsewhere in the government. Nine out of 15 Cabinet-level agencies would see net spending reductions, including Transportation, Justice and Agriculture. He would eliminate or scale back 141 programs for a savings of $14.5 billion.

Even a sacred cow like the National Institutes of Health would see its budget virtually frozen at this year's level after five years of increases.

Of critical importance to the future health and vitality of the economy, Bush's budget would make his first-term tax cuts permanent. Democratic critics have denounced the tax cuts, saying they are responsible for the higher budget deficits. In fact, those tax cuts led to greater economic growth and the creation of 4.7 million new jobs, which, in turn, yielded $100 billion in additional tax revenue that reduced the deficit by one-fourth in fiscal 2005.

These and other spending reductions drew cheers this week from his sharpest conservative critics.

"Overall, he wants to reduce nonsecurity discretionary spending by cutting or eliminating wasteful programs, and we give him a very generous pat on the back for that," said Michael Franc, the Heritage Foundation's vice president for government affairs. Tom Schatz, president of Citizens Against Government Waste, called it "a good start. We're obviously encouraged that the spending increase is lower than in previous years."

But Franc, Schatz and other conservatives pointed to the budget's glaring weakness -- getting control of Medicare and Medicaid entitlements that will explode in the next few years when millions of baby boomers begin signing up for benefits. Medicare alone will grow by $49 billion in 2007.

"Given the baby boomer retirement challenges we face, his relatively modest reduction in Medicare is woefully insufficient," Franc told me.

Bush's budget proposes to trim Medicare by $35.9 billion over five years (largely by cutting payments to hospitals) and by $105 billion in 10 years. A brave effort, though it has zero chance of passing in an election year.

Meanwhile, you will be hearing a lot of fear mongering about the deficits when the budget debate begins in earnest. But there is one number you won't be hearing much: the nation's gross domestic product, which measures the size of our economy. The GDP is about $12.4 trillion now. But Bush's budget forecasts that it will jump to $13.76 trillion in the coming fiscal year -- a huge increase that, if accurate, tells us our economy remains on a sharp upward trajectory to higher growth if we make the tax cuts permanent.

And that means federal revenues will be much higher than has thus far been forecast. In the absence of deeper spending cuts, that forecast will be the government's most effective deficit-cutting weapon of all.