The Bush Budget

More for the military and more deficits

Dean Baker

There are few sur­pris­es in Pres­i­dent Bush’s 2005 bud­get. The main con­tours fol­low the same pat­tern as his past bud­gets, with more tax cuts ori­ent­ed toward the wealthy and increased spend­ing on the mil­i­tary and home­land secu­ri­ty. The result of this pat­tern of tax­a­tion and spend­ing is large deficits that will prove unsus­tain­able in the not-very-dis­tant future.

Income taxes will have to rise by 25 percent to reach a sustainable budget.

At first glance, increas­es in mil­i­tary spend­ing in the Bush bud­get do not appear very large. The bud­get pro­pos­es that mil­i­tary spend­ing increase to $467 bil­lion in 2009 from $433 bil­lion in the 2004 bud­get, with spend­ing actu­al­ly declin­ing slight­ly to $429 bil­lion in 2005. How­ev­er, the pro­posed spend­ing does not include any appro­pri­a­tions for the occu­pa­tions of Iraq and Afghanistan. Bush intends to request this mon­ey in a sup­ple­men­tal appro­pri­a­tion bill after the Novem­ber elec­tion. Based on last year’s $87 bil­lion sup­ple­men­tal appro­pri­a­tion, it is like­ly that total mil­i­tary spend­ing will be in excess of $500 bil­lion, or more than 4 per­cent of GDP, for the fore­see­able future.

Remark­ably, this increase in the mil­i­tary bud­get has been accom­plished with vir­tu­al­ly no debate. In the last years of the Clin­ton admin­is­tra­tion, mil­i­tary spend­ing fell to 3 per­cent of GDP. While some hawks demand­ed a sub­stan­tial­ly high­er mil­i­tary bud­get, this was a minor­i­ty posi­tion in both polit­i­cal par­ties. Now it seems like­ly that the coun­try will be spend­ing 4 per­cent of GDP on the mil­i­tary regard­less of the out­come of the 2004 elec­tion. In fact, if the $40 bil­lion in pro­posed spend­ing on home­land secu­ri­ty is includ­ed, total spend­ing on defense in 2005 is like­ly to be close to 5 per­cent of GDP.

Mil­i­tary spend­ing is almost the only cat­e­go­ry that will see a sub­stan­tial increase in the Bush bud­get. The 3 per­cent pro­posed increase in edu­ca­tion spend­ing is just about enough to main­tain cur­rent ser­vice lev­els — after tak­ing account of infla­tion and a grow­ing school pop­u­la­tion — but far too lit­tle to cov­er the costs of the man­dates in the No Child Left Behind Act.

Most oth­er cat­e­gories will see cuts or increas­es that are too small to main­tain cur­rent ser­vice lev­els. The bud­get pro­pos­es that appro­pri­a­tions for the broad non-defense dis­cre­tionary cat­e­go­ry, which includes almost every­thing except Social Secu­ri­ty, Medicare and Med­ic­aid, are to be increased by just 0.5 per­cent above the 2004 lev­els. Giv­en that an increase of about 3 per­cent is need­ed to main­tain cur­rent lev­els, most gov­ern­ment pro­grams will have to be cut back.

What will this mean? For exam­ple, it means that few­er low-income fam­i­lies will get sub­si­dized child­care and few­er chil­dren will be in Head Start. Cut­backs to a wide vari­ety of state pro­grams will be need­ed. While the impact of the 2005 cuts may not be that large, the bud­get pro­pos­es con­tin­ued cuts over its five-year plan­ning hori­zon, so that in many pro­grams real ser­vice lev­els will be reduced by more than 10 percent.

To lock in such cuts, Bush is propos­ing new rules that would require super-majori­ties to increase spend­ing beyond these tar­get­ed lev­els with­out off­set­ting cuts in oth­er areas of spend­ing. There is no com­pa­ra­ble restric­tion on tax cuts, however.

The bud­get con­tains sev­er­al oth­er tricks, in addi­tion to the exclu­sion of war-relat­ed spend­ing. Adjust­ing for these tricks adds $100 to $200 bil­lion to the annu­al deficits pro­ject­ed in Bush’s bud­get. While the cur­rent deficit is not a prob­lem, in the con­text of con­tin­ued eco­nom­ic weak­ness, the gov­ern­ment can­not run deficits of 4percent to5 per­cent of GDP indef­i­nite­ly. In the not very dis­tant future, it will be nec­es­sary to insti­tute sub­stan­tial tax increases.

To see how out of line the tax sit­u­a­tion has become, it is worth putting aside the des­ig­nat­ed rev­enue streams, such as Social Secu­ri­ty and Medicare tax­es, and fed­er­al work­ers’ con­tri­bu­tions for their retire­ment. The tax­es that sup­port gen­er­al expen­di­tures (pri­mar­i­ly indi­vid­ual and cor­po­rate income tax­es) are pro­ject­ed to equal 9 per­cent of GDP in 2005. By con­trast, the pro­grams that are sup­posed to be sup­port­ed by gen­er­al rev­enue equal more than 14 per­cent of GDP. In oth­er words, income tax­es would have to be increased by more than half in order to cov­er these expens­es. Of course some bor­row­ing is fine, but income tax­es would still have to rise by at least 25 per­cent to reach a sus­tain­able budget.

Obvi­ous­ly, Repub­li­cans will fight any tax increas­es vig­or­ous­ly, but there is not very much to cut from the bud­get after the mil­i­tary and inter­est pay­ments are pulled out. There will be many Repub­li­cans, and prob­a­bly also many Democ­rats, who will look to make cuts to Social Secu­ri­ty and Medicare to help bring deficits down to size. Since these pro­grams are financed by sep­a­rate tax­es — which by all accounts leave them well-fund­ed for sev­er­al decades into the future — there is no rea­son that they should be on the chop­ping block. But truth in bud­get­ing does not seem to be a con­cern of either par­ty at present.

Dean Bak­er is co-direc­tor of the Cen­ter for Eco­nom­ic and Pol­i­cy Research and co-author of Social Secu­ri­ty: The Pho­ny Cri­sis (Uni­ver­si­ty of Chica­go Press, 2000).
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