Commentary: Big Spending Wrapped in a Flag

By Howard Gleckman

Remember the old days of budget surpluses? That's good, because you won't see them again for a long time: President Bush's fiscal 2003 budget could well kick off a tax-cutting and spending spree the likes of which we haven't seen since the days of Ronald Reagan. Even as Bush is proposing nearly $2 trillion in new initiatives and tax breaks over the next decade, Congress is ready to trump his ideas with costly ideas of its own.

Bush's budget calls for a deficit for at least the next three years. After that, the budget would be back in the black, but only because he would use Social Security payroll taxes to fund other programs. "This budget will open the floodgates," says Robert Bixby, executive director of the Concord Coalition, a Washington group that backs fiscal discipline.

While the President has literally wrapped his budget in a flag cover, only about one-third of his new agenda--roughly $650 billion--is directly related to the war on terrorism. Another third is a potpourri of other spending, including a drug benefit for seniors, a big boost in farm subsidies, and $70 billion to subsidize the cost of health insurance. The rest represents new tax cuts. Most would make permanent Bush's 2001 tax reduction, now due to expire in 2010.

Although the Bush agenda will throw the nation back into deficit, it is unlikely to recreate the fiscal sinkhole of the 1980s. Bush's tax cuts, including last year's, are roughly the same size as Reagan's 1981 plan: a bit more than 2% of gross domestic product, according to Brookings Institution economist Peter R. Orszag. But his war on terrorism is far less costly than other recent conflicts. When the Gipper came into office in 1981, the nation was spending 4.9% of GDP on cold war defense. Within five years, Reagan had pushed that to 6.2%. By contrast, in 2000, the nation was spending about 3% of GDP on the military. Bush would boost that to just 3.5% in 2003.

With less pressure to shift spending to the military, lawmakers will feel they've got a free hand to spend for their own priorities. The first big skirmish will be over Bush's '03 agenda. Congress will quickly embrace the $5 billion in new funding he wants for homeland security in the coming year. And they will give Bush most of the $36 billion in new defense money he wants for '03.

The real struggle will be over the rest of the budget. Bush wants to hold down increases in all other programs, from the Environmental Protection Agency to the Education Dept., to about 2%. That would barely keep up with inflation. And some Republicans want to cut more deeply than that. They will demand a balanced budget in fiscal '03, instead of the $80 billion deficit Bush is embracing. Says Senator Jeff Sessions (R-Ala.): "I am concerned that we will lose the high ground on containing spending."

Still, the White House doesn't seem very worried about deficits. And Democrats--along with many Hill Republicans--have a deal in mind. They will accept Bush's initiatives if he agrees to theirs. The likely result: a frenzy of spending, all cloaked in the fog of war.

Conservatives worry that for all Bush's talk about smaller government, he has been a fairly enthusiastic spender. Last year, he agreed to spend more for education as the price for his signature schools bill. He has already embraced $70 billion in new agricultural subsidies pushed by farm-state legislators. And despite budget director Mitch Daniels' tough talk about slashing wasteful spending, Bush would kill just a handful of programs. "Their rhetoric is refreshing," says Chris Edwards, director of fiscal policy at the libertarian Cato Institute, "but in the end, they step back. That gives the wrong message."

So does Bush's green light for a new round of tax cuts even as he proposes spending increases. Osama bin Laden may provide convenient political cover for a spend-a-thon, but the war on terrorism has not made fiscal discipline irrelevant.

Gleckman covers fiscal policy from Washington.

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