George Bush's budget
An election-year farce
Feb 5th 2004 | WASHINGTON, DC
From The Economist print edition
SourceNice glossy brochure, not much fiscal responsibility
ELEVEN days after Congress at last approved a budget for the current fiscal year, which began in October, George Bush presented Congress with a $2.4 trillion budget for the next. Think of it as a campaign brochure, complete with glossy pictures of the president bringing relief to the elderly, restoring the environment and exhorting the young. As a way to unveil the three main themes of Mr Bush's re-election strategy—fighting the war on terror, protecting the “homeland” and getting the credit for a recovering economy—the brochure is a tour de force. As an exercise in fiscal responsibility, it is a charade.
For the armed forces and homeland defence come big proposed increases in spending, up by 7% and 10% respectively. Nothing short of “transformation” is proposed in order to win the war on terror. A Republican Congress is unlikely to begrudge Mr Bush the money.
A bigger problem are those puckerish conservatives who believe that almost any domestic spending by the federal government is wickedness incarnate. This group complains that, since he came to office, Mr Bush has betrayed the vision of Ronald Reagan with a “big-government conservatism” that has increased spending wildly.
In this budget, the president makes his peace with this pinched lot. He proposes that total discretionary spending increases by only 3.9%—less than the rise in average household income. To achieve that, he plans to restrict any increase in discretionary spending not related to homeland security or defence to just 0.5%. Money will be cut for school drop-outs, illiterate prisoners and so on: 65 “major” programmes in all are to be cut, a welcome assault for conservatives on the parasites (Democrats, if they vote at all) on the state. On the other hand, money will be raised for wholesome programmes like one supporting “healthy marriages”. And best of all, as far as the puckerers are concerned, his temporary tax cuts are to be made permanent.
And there is more. While many of the Reagan flame-keepers agree with Dick Cheney that “deficits don't matter”, other Republicans have become increasingly unsettled by a budget deficit now forecast at $520 billion this fiscal year, or over 4.5% of GDP. To this camp, the president promises that spending restraint, by reimposing long-term budget caps, combined with higher revenues from faster economic growth will halve the deficit by 2009. By then, the deficit will be back below its long-run average, as a proportion of GDP.
If this all looks too good to be true, it is. For once, the administration has not fiddled the books by relying on unrealistically high growth rates in the coming years; but it has relied on other fibs. For a start, the budget does not factor in the future costs of keeping soldiers in Iraq and Afghanistan: even Mr Bush's own budget director says costs could be as much as $50 billion for Iraq alone in 2005. Then the usual implausible savings are found from “waste, fraud and abuse”. Third, all the president's cuts are to fall on the one-fifth of the total budget that counts as domestic discretionary spending—hardly likely to happen in an election year.
Mr Bush's most culpable failing lies in his refusal to think beyond the 2009 horizon. Take, first, the tax cuts of 2001 and 2003, which Mr Bush wants to make permanent at a ten-year cost, when other new proposals for tax-free savings schemes are added in, of $1.25 trillion. The cuts may well have provided a welcome economic stimulus at a time when confidence was knocked by recession and terrorist attack. But after 2009, these cuts will equal three-quarters of the total deficit, even by the administration's own numbers.
This matters, because soon after that date, some very predictable things happen, thanks to a demographic bulge as the baby-boom generation reaches retirement. The surplus on government-retirement accounts, which currently subsidises federal spending by over $250 billion a year, will vanish. The costs of Medicare, the health programme for the elderly, will soar. Mr Bush has aggravated the problem by pushing through a Medicare prescriptions law whose ten-year cost has now jumped to $530 billion. The idea that Mr Bush will ever tackle these issues—even in a second term—looks fanciful.
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