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Is Bush Now a Budget Cutter?

Mises Daily: Thursday, March 10, 2005 by

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When President Bush released his 2006 budget proposal, he cast himself as a measured and decisive figure bent on taming the government’s profligate spending and raging deficits.

When one peers beyond the stage-managed façade, however, what one finds is that Bush earns the dubious distinction of being one of the biggest big spenders of all time. His cuts are as cosmetics as his vast increases are all-too-real. Whether we examine his domestic or foreign agenda, his administration embodies the worst of the worst of the American big-government tradition.

The basis for the claim

The basis for the budget-cutting swagger is the following. For the first time since the 1980s, non-security discretionary spending will actually fall in real terms. 13 of 24 major federal agencies will experience a reduction in proposed allocations. Slatted for elimination are some 150 government programs the White House regards as redundant.

The budget ax falls on domestic programs, specifically agriculture, education, transport and environmental protection. In particular, the White House effectively pulled the plug on transportation boondoggle Amtrak. Farm subsidies will shrink by $587m as part of the 9% or $2bn reduction in the Agriculture's Department's budget. Entitlements for the poor, such as food stamps and Medicaid, will not be spared a trimming. In addition, the Bush administration claims that the budget deficit will be cut in half over the next four years.

If that sounds good for starters, the White House's PR efforts are actually designed to serve three goals: 1) assuage jittery capital markets about America's gaping twin deficits 2) appear tough domestically on fiscal issues, while relying on Congress to restore jeopardized programs 3) continue the transformation of the federal government according to Bush's and traditional Republican big government precepts.

The Spending Side

Let us unpack the spending side of budget. Taken at face value, the budget is $2.57 trillion, the largest ever, and $89bn more than last year. The dollar increase alone surpasses the entire federal budget of half a century ago, so let us please not call this a cut.

The purported draconian reductions in non-security discretionary spending lacks corroboration. The White House claims it will hold said expenditures below the rate of inflation for the next five years, though without explaining how this lofty ambition would be accomplished-a budget theme. Moreover, non-defense discretionary spending accounts for only 17% of the budget. By contrast, social security alone comprises 21% of the budget, as the chart below illustrates:


The much-touted pledge to cut the federal budget deficit is acutely necessary, considering at some point foreign central banks will tire of underwriting U.S. profligacy. Indeed, Americans require $2bn of investment a day to satiate the country's current account and budget shortfalls. Moreover, deficits are an insidious method of government finance, as taxpayers are charged with footing the interest and principal, either through taxes on future income or inflation as the government prints its way out of debt.

Concerning the government's borrowing projections, the White House leaves out estimates for continued military operations and social security transition costs from future years' deficits. These omissions are grave in that the two projects are the president's top foreign and domestic policy centerpieces.

Not only that: Bush's forecasts abruptly conclude at 2009, not the customary 10 years. From 2009 onward, the deficit is poised to drastically deteriorate as tax cuts--without matching spending reductions-are made permanent and rising entitlement costs render Bush's unsubstantiated commitment to halve the deficit a mere blip in a sea of red ink.

Medicare, the elderly health care program, already consumes 13% of the budget and will continue to grow as more people become eligible for benefits and live longer. Social security outlays will supposedly surpass tax receipts beginning in 2018. By some estimates, social security reform could cost up to $2 trillion in the first 10 years.

Bush's budget predicts that the 2006 deficit will drop to $390bn, down from an anticipated record of $427bn this year. Again, the figure does not incorporate America's present wars, including the certainty of another supplemental beyond the one proposed for this year, much less tackling social security.

Predictably, the president promised to begin trimming the deficit by half last year; instead, the deficit is on track to jump $15bn year-on-year. Already the latest projections for 2006 and 2007 deficits are $122bn and $71bn, respectively, larger than predicted a year ago, again oblivious to wars or pensions. Not only will this year's budget deficit be the largest on record, with close to 40% of the total financed by foreigners, the yawning shortfall will bring cumulative federal borrowing to $5 trillion.

Paying For It

Concerning taxation, the picture is scarcely better. In the coming years millions of middle class Americans will feel the wrath of the Alternative Minimum Tax, a levy conceived to ensure Washington could seize property from individuals deft at utilizing loopholes. The president's budget proposal rescinds AMT exemptions Congress granted in recent years to the middle class.

Although it is conceivable Bush could abolish the AMT alongside making permanent his tax cuts for dividends, capital gains and business expenses, the move belies his vow to halve the deficit. As stated earlier, tax cuts absent corresponding spending reductions merely constitute a government claim on future income.

In addition, the president asks that airline patrons foot a $3-per-ticket increase in the federal security fee they pay, from $2.50 to $5.50 for a one-way trip and $8 for roundtrip flights. The surcharge raises an additional $1.5bn to help the Transportation Security Administration defray the expenses of those wonderful TSA agents.

Revisiting the president's purported "tough love" approach to domestic spending, the White House failed to specify which of the aforementioned 150 domestic programs were irredeemable. As Bush's budget supremo, Josh Bolten, pointedly told reporters during the budget unveiling, the purpose of the presentation was, "to step back and take a look at the whole budget. If you have particular interests, you can go through and find where your interests are."

In other words, find out yourself whether they exist.

Bush has never met a bill he did not like; indeed he is the first president since John Quincy Adams to fail to veto a bill during his first term in office. Ironically, Bush vows to veto any bill that threatens his Medicare prescription drugs  benefit passed last year, the greatest aggrandizement of the Great Society project since its inception.

In any event, the White House can bank on what are known as "Washington monument proposals," programs simply so dear to legislators that they cannot be terminated, to stealthily mitigate proposed cuts. For instance, the mooted reduction of generous farm subsidies has already provoked an outcry, and will certainly galvanize opposition from agrarian lobbies in the Red States.

Other Republicans concede that certain emotive programs such as Amtrak will be clawed back by Congress simply because one segment of American society wants taxpayers and buyers of U.S. treasuries to subsidize their cherished programs.

The feigned budget sparring is a charade that works quite well for both the executive and legislative branches; the implicit quid pro quo garners Bush plaudits for his supposed fiscal restraint while Congress rescues its pork barrel in subsequent budget negotiations.

South Carolina Representative John Spratt Jr., ranking democrat on the House Budget committee, lamented that Bush's budget proposals, "are real and they hurt. Yet for all the hurt, these accounts hardly move the deficit at all."

Guns and butter all around

Whereas the Department of Defense’s allotment is less than what the president previously envisioned--4.8% growth compared to 7%--the budget bill is an enormous sum, $419bn. The DoD regards this money as crucial in prosecuting the global war on terrorism, restructuring the armed forces and revamping America’s global military posture.

To this end, approximately $48bn is being proposed to fund the Army's ongoing modernization, which in part consists of converting 33 brigades and regiments--about 30 of which are organized into 10 divisions--into a force of 43 so-called "brigade combat teams" by fiscal year 2007. With the elimination of one layer of command, the brigades would operate more autonomously and communicate directly with a higher echelon.

The conversion will increase the number of active maneuver brigades by 30%, making more units available for deployment to Afghanistan, Iraq and elsewhere. Top brass plans to evolve from a notice-train-deploy model to train-notice-deploy construct commensurate with the Army's embrace of an "expeditionary" mindset. Of course, the budget also continues to fund new ships and aircraft.

Similarly, the DoD is looking to reconfigure its global defense posture in light of a new era of failed states, terrorism, and asymmetrical threats. An unspecified number of stateside military installations are slated to be shut down as part of the base realignment and closure process in tandem with the DoD's policy of lightening its overseas "footprint" by drawing down large garrisons in favor of small forward-operating bases sprinkled over the globe.

One should not interpret these measures as an indication of a shrinking military, as there are at present roughly 407k military personnel deployed in 120 countries. The DoD baseline budget has grown by a whopping 41% since 2001; overall, there are about 2.25m Americans serving in the armed forces.

As Donald Rumsfeld put it, "I’ve noticed people have thought that when people use the terms 'agile,' 'lethal,' and ‘expeditionary,' they think that means smaller. It doesn't. It isn't the size of the force that was wrong; it was the shape of the force and the capability of the force."

However, a firm grasp of the magnitude of U.S. military spending is incomplete without considering supplemental appropriations. Feb.14 President Bush lodged his $81.9bn supplemental request with Congress, asking it, "to appropriate the funds as requested and promptly send the bill to me for signature."

Of the $74.9 earmarked for the DoD, $48.3bn will be directly channeled to ongoing military operations in Iraq and Afghanistan and to replacing and repairing military equipment worn down by desert and wartime conditions. $8.9bn would go to multiple international initiatives-in part funded by the State Department's $5.6bn share of the supplemental pie, such as the controversial $200m handout to the Palestinians, the $658m construction of a U.S. embassy in Baghdad and $2bn in payoffs to selected countries that joined Bush's posse, "the coalition of the willing."

Current wartime supplemental funding is defraying the expenses of an additional 30k soldiers above the Army's enumerated peacetime ceiling.

Roundabout 25% of the Pentagon's proposed 2006 budget is being approved through the less rigorous supplemental process--as opposed to the protracted but more meticulously monitored perennial budget appropriations process. This tactic furnishes the White House an avenue to scupper debates over the ongoing expenses of his global war on terror and obtaining military goodies with scarce legislative oversight.

One example of the supplemental shenanigans Congress would like to sink its teeth into includes the $5.7bn requested to train and equip nascent Iraqi security forces. The text of the supplemental is clear in stating all but one of the 90 Iraqi security battalions lack the basic arms, sustainment and mobility capabilities consistent with a competent force, despite a unremitting insurgency and repeated disingenuous boasts made by the administration regarding the progress of these units.

The request for a tenfold increase in funding for Iraqi security forces does not explain how much money will be allotted to equipment, training or even salaries of Iraqi fighters, ambiguity the supplemental process simply compounds.

Once approved, the supplemental will boost the U.S. government's war expenditures for 2005 to $100bn, which should not be difficult to secure since Bush's party controls both houses of Congress. Moreover, spineless Democrats are reluctant to duplicate John Kerry's remark, "I actually did vote for the $87bn before I voted against it." Along with 11 other Democrats, Kerry cast his ill-fated vote against the Senate version of a supplemental spending bill in 2003.

Overall, this year's $81.9bn supplemental is one of largest emergency requests in U.S. history, coming in just shy of the aforementioned $87bn approved in Autumn 2003. The sum exceeds the 2006 budget request for the departments of Housing and Urban Development, Justice and Homeland Security and more than four times the reductions in discretionary spending Bush plans to make next year. This latest request would push the totals provided for the conflicts and worldwide efforts against terrorism to $275bn. Taken together, fiscal year 2005 military spending--including the expected $100bn earmarked for America's conflicts and the regular DoD allotment--when adjusted for inflation, exceeds the post-World War II record set in 1968 by Lyndon Johnson.

Pentagon officials have already indicated additional funding requests for 2006 are in the offing and the White House has demonstrated no intention of incorporating future funding for the global war on terror into the budget. Why do so when Congress eagerly appropriates the money and supplementals permit the White House to amass a larger defense budget, obfuscate comprehension of the budgetary process and slip contentious programs in through the back door with limited scrutiny?

The Homeland Security Hoax

American taxpayers and foreign lenders will also pay the bills for an augmentation of funds for the Department of Homeland Security. The bureaucratic monster charged with conducting domestic and foreign espionage, overseeing the notoriously "hands-on" transportation security administration and drilling for the contingency of martial law will pocket $41.1bn, a 6.8% increase in government allocations.

Interestingly, the biggest increase in funding in percentage terms in the DHS is in the intelligence field—22%--most of which will be absorbed by the Secret Service and Information Analysis and Infrastructure Protection Directorate.

In that vein, the FBI's proposed take is 11% greater than last year to help fund its priorities of combating terrorism and rooting out foreign spies. The Drug Enforcement Agency's funding will grow too, by 4.3%, perpetuating the utterly wasteful and counterproductive "war on drugs." In sum, the budget reflects the administration's preference for vast expenditures on armaments, security (for the state), and another year of big government republicanism.

Goodbye Goldwaterism

Since George II's election in 2000, what remaining fealty the Republican machine had for the small-government philosophy of conservatism introduced by Barry Goldwater in the 1960s has undergone an about face. The Bush presidency has presided over the largest increase in discretionary spending last seen on Lyndon Johnson's watch, whom ironically trounced Goldwater in the 1964 presidential election.

Total federal spending rose by almost 30% during Bush’s first term, tripling the rate of growth of Bill Clinton's first and second term. Federal expenditures on education jumped by 75% during Bush's first term in office, despite the fact that the "Contract with America" Republicans clamored for the abolition of the Department of Education.

Despite the president's rhetorical support for rolling back bureaucratic meddling in citizens' lives, more people now work for the federal government than at any time in history. Should the White House's 2006 budget proposal come into effect, another 6,000 people will be added to the civilian employment payroll of the executive branch, bringing the grand total to approximately 1.88m Americans. Nearly 140,000 civilians have been hired since 2001, almost half of which whom work for the DHS.

What is more, the whole Social Security debate, as framed by the administration, involves another round of bait-and-switch. An unprecedented proposal for a system of forced savings centrally administered by the federal government with input from connected Wall Street allies is packaged as a free market-inspired measure, something the White House and Republicans in general are quite adept at spinning.

Bush even has even mooted--aides say just livening the Social Security debate--lifting the cap on FICA taxes.

Contracting for Coercion

The GOP, whatever its stripes, has always been cozy with business, most notably in awarding private enterprises government contracts. It is self-evident that private enterprises are vastly more productive than government agencies in the marketplace, because the former is disciplined by consumer satisfaction and the latter is not, the principle of consumer satisfaction is absent when government, to use is own parlance, "outsources" work to contractors.

Government contracting replaces voluntary agreement, risk and uncertainly, with a process of awarding property government involuntarily seized from its owners as payment to a firm qualified to perform a service for the state. In essence, consumer choice is substituted for government diktat. The process is thoroughly corrupting and destructive in that government can make or break companies, whom in turn seek to win influence in the executive and legislative branches. The process also casts a pall over free market capitalism, enabling the hard left to castigate private enterprise as rent-seeking parasites in league with the state.

In the Bush administration the burgeoning role of government contractors is evident. There are at least twice as many private contractors working for the U.S. government as there are civil servants, an upsurge that is sure to continue unimpeded.

For example, 20,000 armed personnel are employed by firms working in Iraq, making it the largest foreign force after the U.S. Legally, security contractors-whether paid by U.S. tax money or Iraqi oil receipts- are a boon for the client government, given the legal black hole that exists. Verily, private firms provide a convenient means to circumvent legislative caps on troop levels in foreign countries, as is the case in Colombia.

Civilian contractors are virtually immune from civilian courts in their home country and certainly exempt from the code of military justice. Domestic Courts in countries where contractors work rarely function in the midst of armed conflict, and in any event a foreign administrator can curtail these tribunals’ jurisdiction. America' viceroy in Iraq, Paul Bremer, inked a decree exempting foreign contractors from Iraqi law two days before leaving office, a shame considering employees from two U.S. companies are alleged to have participated in the torture of prisoners in Iraq, particularly at Abu Ghraib.

In the end, the battle between Republicans and Democrats is not about how robust or flaccid the state should be; it is merely a contest between two bullies brawling over how much loot goes to their favorite constituencies at the expense of everyone else.

As with all government spending, the state wins in every budget while the lovers of liberty, property and markets lose.

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Grant M. Nülle is a Research Fellow with the Ludwig von Mises Institute. [grantn007@yahoo.com]