President Barack Obama has introduced his federal budget plan for the coming years, and it includes large increases in spending, taxes, and debt.
Building on spending precedents set by President George W. Bush, Obama’s budget would boost nondefense outlays to a record share of the economy.
Obama’s Spending Plan
Obama’s budget promises to save money by reforming procurement and cutting various types of waste. But the budget’s main thrust is to boost spending on health care, energy subsidies, college aid, refundable tax credits, and other items.
Nondefense spending is total federal outlays less defense and net interest. Even after the current spike in spending caused by the stimulus bill and financial bailouts, Obama is planning to spend at permanently higher levels.
By 2019, nondefense spending would hit 17 percent of GDP, a 30 percent higher share of the economy than under President Bill Clinton in the late 1990s. And that large expansion understates Obama’s plans because it includes only a fraction of the spending for his forthcoming health care proposal.
The boldness of Obama’s spending plans is partly attributable to the spendthrift example set by Bush and Congress, who ramped up both defense and nondefense spending. Even excluding recent financial bailouts and the takeover of Fannie Mae and Freddie Mac, real nondefense spending increased an average of 4.2 percent annually during Bush’s eight years in office.
In crucial ways, the Bush era domestic policy paved the way for Obama’s expansionist plans:
* Deficit Spending. Bush favored large spending increases, even in years with big deficits. Obama titled his budget A New Era of Responsibility, but his huge deficit spending will push up public debt as a share of GDP to levels not seen since the 1940s.
* Keynesianism. While some of the Bush tax cuts were pro-growth, many of his policies were marketed on the faulty idea of fueling short-term aggregate demand. Bush’s temporary tax cuts and financial bailouts laid the groundwork for similar Obama policies.
* Undermining Federalism. Bush increased federal intervention into state and local affairs, as with his education subsidies and mandates. The stimulus bill and Obama’s first budget further intervene in education and other state activities, which undermines the Constitution and nullifies the advantages of our federal system of government.
* Health Care Expansion. Bush pushed through the Medicare prescription drug benefit, which currently costs taxpayers $60 billion annually and is rising. Obama’s health care proposals are expected to cost more than $100 billion annually.
* New Subsidies. Bush added hundreds of new federal subsidy programs, and Obama’s budget has new subsidies for energy research, energy efficiency, broadband, education, high-speed rail, refundable tax credits, and other items.
* Government Efficiency. Bush focused on making federal programs more efficient instead of trying to eliminate them. Obama’s budget likewise promises to make programs work better and includes few terminations.
* Tiny Spending Cuts. Obama’s budget has tiny spending cuts marketed as if they were big reforms, a political strategy formerly used by Bush. For example, Obama is proposing to trim subsidies for wealthy farmers. The idea is to signal that one is a reformer without actually having to do the heavy lifting of serious budget cuts.
Both Parties Guilty
The examples illustrate that party labels have meant little in recent federal budget expansions. Each recent president has added new subsidy programs, expanded existing ones, and imposed new mandates on the states. Those changes usually have been retained by later presidents, resulting in outlays growing ever larger.
If taxes and spending rise, however, capital and labor must shift from more productive private activities to less productive government ones. Since productivity is the source of our high standard of living, that shift reduces American incomes over time.
Chris Edwards ([email protected]) is director of tax policy at the Cato Institute. An earlier version of this article appeared in the March 2009 edition of Cato’s Tax & Budget Bulletin. Used with permission.