Taxes & Spending

Bush Budget Curbs Spending Growth

President Bush’s budget released Monday, February 5 presents a future where the Bush tax cuts are made permanent, the budget is bought into balance by 2012 by holding down the rate of growth of federal spending and there are no tax hikes.

If the President’s plan is passed by Congress, total federal government spending will decline from its present 20.3% of Gross Domestic Product to 18.3% of GDP. Government would in fact become smaller as a percentage of the economy.

There will be a great deal of discussion of the President’s goal of balancing the budget by 2012 without raising taxes while making the tax cuts permanent. But eliminating the deficit is not the important goal.

As the late Milton Friedman always reminded us, the true cost of government is total government spending, not the deficit. The deficit is visible like the snow-capped part of the iceberg above the water. (Note: the Titanic never hit the top of the iceberg.) We should always keep our eye on the total cost of government and in particular the percentage of the economy consumed by the federal government. The Bush budget moves in the right direction.

Now the bad news. The federal budget is large and getting larger. Total federal spending in Fiscal year 2006 was $2.65 trillion. This will grow to $2.78 trillion in FY 2007 and $3.25 trillion in FY 2012.

The President’s friends will tell us how non-defense, non-entitlement, non-homeland security spending is increasing more slowly than in the past. But the economy and taxpayers have to pay the total cost of spending. You don’t make government spending less painful by pretending that some of it doesn’t count. It is a little like discussing how tall Wilt Chamberlain is if you don’t count his legs. If some federal spending is necessary, then reduce less important spending to make room.

The worse news is that this is what the budget looks like before the Democrat majority in the House and Senate get their hands on it.

The President has signed the Taxpayer Protection Pledge promising to veto any effort to raise taxes. His budget continues this promise. And he is close to having real teeth in that veto promise. Congressman Tom Feeney of Florida has written and circulated a letter to the President signed by 131 congressmen promising to uphold the President’s veto of any tax hike. Feeney believes he will soon have the 145 signatures to guarantee the one-third plus one of house members needed to sustain any veto. Shockingly there are today 71 Republicans who have so far failed to sign the letter. (Click here to view the list.) Less shockingly, not a single Blue Dog Democrat has signed the letter. (Click here to view the list of Blue Dogs whose “fiscal responsibility” does not include stopping tax hikes.)

The President’s budget calls for eliminating or reducing 141 programs for a savings of $12 billion. However, when the President called for terminating 99 programs in FY 2006 to save $8.4 billion dollars and reducing 55 programs to save $7.5 billion, Congress accepted in part 89 terminations and reductions for a savings of only $6.5 billion or 40% of what Bush asked for. These “savings” were then transferred to new spending. And that was under the Republican Congress.

The Office of Management and Budget says that it will have all government contracts and grants available on the web for all Americans to inspect no later than January 1, 2008. This is now required by law thanks to Sen. Tom Coburn’s legislation that was signed last September.

This reform is already underway in Texas where Gov. Rick Perry has posted all of his governor’s office spending on the web and instructed the entire state of Texas to do the same. In Indiana, Gov. Mitch Daniels has posted all state contracts online.

Bush is using the bully pulpit to make his tax cuts permanent, stop any other tax hikes, and slow the rate of growth of federal spending to lower the cost of government as a percentage of the economy.

Some in the administration are arguing for the President to go further. They remind the President that earmarks are now universally understood and condemned. But earmarks are not something Congress does alone. Ninety percent of earmarks are simply put into committee language, not in legislation. That means the Bush administration could simply ignore them. They have, to date, chosen to enforce them. Ninety percent of earmarks in the past six years have the President’s fingerprints on them.

Bush has called for congress to cut the number of earmarks in half. Imagine a bank President asking his staff to please embezzle only half as much next year.

Bush could announce that he will not recognize or implement any earmark if Congress sends him a budget in whole or in part above his recommending spending levels. This would make the appropriators who love earmarks the enforcers of less total spending even as they direct some of it to their earmarks.

Six years into his presidency, Bush has begun to focus on total spending. He has the veto and the power to ignore earmarks. The real test is ahead. Will Bush use the powers he does have to fight for reducing the cost of government?

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