Spending, Not Tax Cuts, Has Sent Federal Deficit Spiraling

Published April 1, 2005

You know that fiscal sanity has flown south for the winter when Nancy Pelosi and Ted Kennedy are throwing eggs at the Republicans for their budgetary recklessness. Kennedy has been on a tirade about how George Bush took a $200 billion budget surplus and converted it into a $400 billion deficit.

President Bush released his 2006 budget of the United States government on February 7. Bush requested just over $2.6 trillion in spending. That’s $2,600,000,000,000. If a Democrat proposed a budget this size, Republican fiscal hawks would squawk to the rafters of the Capitol Dome in protest.

This is more money than the federal government spent in its first 120 years combined!

Spending Spree to Continue?

For fiscal conservatives, the biggest question about President Bush’s second term is whether the reckless spending spree this president launched four years ago will continue over the next four years. If the expenditure patterns continue, Bush will go down in American history as one of the biggest debt-and-spend presidents ever.

There are positive features to the budget that suggest a change of course. Bush would eliminate more than 100 useless agencies, and he would hold all domestic social spending below the rate of inflation.

But because of the high cost of the war in Iraq, the overall budget still rises well above the inflation rate.

Tax Cuts Increase Revenue

Democrats continue to argue that the budget deficit explosion is a result of the Bush tax cuts. However, that’s inconsistent with the facts. The 2003 reduction in the capital gains and dividend taxes, for example, has led to an increase in revenues, because it has led to an increase in economic growth and stock values.

The problem is spending increases. The latest ratings by the National Taxpayers Union tell us that during the 2003-04 session, only 13 members of Congress–a record low–voted to reduce the overall outlays of the federal government.

Over the past 30 years, there have been only two periods when the federal budget actually shrank.

The first instance was in 1981-82, when Ronald Reagan set a new course for the budget and his first two budgets actually reduced overall domestic spending after adjusting for inflation. The second time this happened was in 1995-96, the Contract with America period. In those two years, federal spending in real terms fell by almost 4 percent.

Spending Far Exceeds Inflation

The problem is that in all the other years the federal budget has grown at a rate far above inflation. In 2002 the federal budget grew by almost 8 percent.

The goal of the new GOP Congress, with the largest majorities in my lifetime, should be to reduce government spending over the next two years in real terms. This is an achievable goal, especially given that federal agency budgets have grown so massively in recent years.

If Bush and the Republican Congress would make spending reduction the goal, even with the initiative to make the tax cuts permanent, the deficit, which now stands just north of $400 billion, would be easily cut in half four years from now, which is what Bush promised during the campaign.

Ronald Reagan once quipped that getting the budget under control is like protecting your virginity: You just have to say no. Republicans haven’t been saying no to the Washington spending establishment in recent years, and that is why we face an ocean of debt.

It would be a bitter irony if in 2006 Republicans lost the majorities in Congress they have spent two generations achieving, because voters decided that Pelosi and Kennedy Democrats would do a better job as fiscal stewards.

As one freshman Republican, Louie Gohmert of Texas, told me, “I came to Washington to replace the big-spending party, not to become a member of it.” That’s a lesson Republicans forget at their own peril.

Stephen Moore ([email protected]) is president of the Free Enterprise Fund and a senior fellow at the Cato Institute.