In early 2005, the Bush administration released its budget for fiscal year 2006 (which goes from October 2005 to September 2006). And, for the first time, the Bush administration serves up big spending cuts. So it's worth checking out for whom the axe falls. In addition, the longer-term priorities of the administration and its backers are just under the surface.
First, the short-run impacts, primarily spending cuts to human services programs, have gotten the most attention. But the long-run implications are particularly worrisome. Lurking behind these reams of tables and numbers is a mission to significantly shrink government.
The problem is this: We are collecting too few revenues to meet our spending obligations. Unless we make big changes, the magnitude of the imbalance between what government takes in and what it's slated to spend grows to unsustainable levels. Eventually, we will either have to raise more revenue to meet our commitments or very noticeably reduce those commitments. The cuts we're arguing about today will pale by comparison.
This revenue/spending point is critical, both for historical context and to fend off partisan arguments. Federal tax revenues as a share of gross domestic product (GDP) were 16 percent last year -- their lowest level since 1959 -- while federal spending was not particularly high in historical terms. In fact, between 1975 and 2003, federal spending relative to GDP averaged 21 percent; last year, it was 20 percent.
A particularly misleading argument is that we're overspending on domestic programs. The Center on Budget and Policy Priorities is the best source for speaking truth to power on these issues; its website is a treasure trove of information on the president's budget. CBPP puts it this way: “[R]ecent domestic spending increases come in a distant fourth as a cause of the current deficit, well behind tax cuts, spending increases for defense, homeland security, and operations in Iraq and Afghanistan, and the economic downturn.”
Due in large part to the massive tax cuts enacted since 2001, we've choked off our revenue stream. Yet, we're still devoting about the same share of our economy to federal spending. That was the story of Bush's first term.
Things are shaping up differently this time. The administration claims to have gotten serious about deficit reduction and has constructed a budget that allegedly cuts the deficit, albeit temporarily. Predictably, they do so exclusively by cutting spending. In fact, the budget calls for further tax cuts amounting to $1.4 trillion over the next 10 years -- over $2 trillion if you include fixing the alternative minimum tax; this fix is highly likely, since by 2010 the AMT is expected to hit 33 million taxpayers (about one-third of all returns, compared with less than 5 percent in recent years).
A few years ago, conservative activist Grover Norquist bragged that his agenda was to “starve the beast” of government spending. But the beast-starvers did not count on the Bush administration to be both so open to new spending and unconcerned about deficits.
It has thus taken a little longer for the starving to commence. The federal government is still spending about the same share of the economy as ever, but the administration knows that will have to change. As economists point out, “Unsustainable trends can't be sustained.” The question is: How will they be reversed?
What's Being Cut?
According to analysis by CBPP, the president's budget proposes a 16 percent ($214 billion) cut in domestic discretionary spending between 2006 and 2010, outside of homeland security. Among other areas, these cuts are slated to occur in education, training, and income security. It is estimated that as many as 300,000 working poor could lose food stamps; the same number of children are projected to lose childcare subsidies. Cuts in education services to adults would affect 470,000 persons. As many as 671,000 could fall off the roles of the WIC Program (a nutrition and health program for women, infants, and children); 370,000 fewer households could get Section 8 housing vouchers; and 360,000 could lose low-income home energy assistance. Head Start slots could fall by 90,000 by 2009.
Turning to entitlements, the president's budget cuts Medicaid by $45 billion on net over 10 years (the budget proposed $60 billion in cuts and $15 billion in increased spending), in part by enforcing stricter rules on how states finance their share of the program (Medicaid is a federal/state match -- if the Feds give less, the states either have to pony up more or cut services). According to the Coalition on Human Needs (CHN), in 2010, “[T]he funds lost to states would be enough to provide health coverage to 1.8 million children.”
Given these long-term fiscal constraints, these cuts could be only the beginning. For the Norquists of the world, they cause the beast to miss a meal or two; they don't starve it. So they float a few other ideas to create more lasting attacks on federal spending. Here are three techniques for putting the starve function on autopilot.
Budget Reconciliation: As CBPP analyst Sharon Parrot notes, this is a process in which Congress sets a multiyear deficit target and moves legislation on a fast track to make cuts in entitlement programs to meet the target. In practice, the various committees that determine spending levels are instructed to cut a set amount from the programs over which they have jurisdiction. The larger the reduction targets, the bigger the program cuts. Parrot warns that “[t]he House has been trying to use this fast-track budget-cutting process for several years, and so far the Senate has stopped them. But … with the elections safely behind congressional leaders, this is more likely to happen.”
Entitlement Caps: This is a backup if lawmakers don't slash sufficiently in reconciliation. If entitlement costs (excluding Social Security) are projected to exceed the cap, Congress must pass legislation to stay under cap or across-the-board cuts are made automatically.
Block Grants: Most of us know this approach through welfare reform, which became a block grant in 1996. Entitlements, such as food stamps and Medicaid, do not undergo annual appropriations because, by law, they have to expand or contract to meet the needs of those who qualify for the program. Block grants, on the other hand, are chunks of money that undergo annual appropriations and are sent to the states to cover specific program functions. They give states more flexibility, but they set up a chopping block that did not previously exist.
The two most important messages in the current budget are:
- Sorry, folks. We really think stuff like education, job training, food stamps, and childcare are important. We just don't have the resources to help.
- Watch out ahead! This budget path we're on is unsustainable.
We're not supposed to notice that the administration, with Congress's approval, is responsible for these problems. And we're supposed to be resigned to the fact that our diminished revenue outlook means belt-tightening. Forget national priorities like health care, education, and housing -- can't afford 'em.
The current operative agenda has two components: (1) Put the budget on an unsustainable path; and (2) Take tax increases off the table. Lawmakers then throw up their hands in despair, claiming they have no choice but to slash and burn.
But the president's budget goes beyond this: It calls for billions more in tax cuts. And not included in the budget are costs of the ongoing war; fixing the AMT; and, biggest of all, over $750 billion of borrowing necessary to partially privatize social security. Even ignoring these, the Congressional Budget Office finds the budget would add $1.6 trillion to the national debt, of which $1.4 comes from making the Bush tax cuts permanent.
There needs to be a “plan B” that includes tax increases. According to CBPP, we could get much of the way to 75-year solvency in Social Security simply by reversing the tax cuts that go to the top 1 percent (75-year financing shortfall: $3.7 billion; 75-year cost of permanent tax cuts to top 1 percent: $2.9 billion). The cost of these high-end tax cuts is about what the Feds spend on education and a lot more than we spend on housing and urban development. According to CHN, repealing the estate tax would hit a few multimillionaires, but it would return the resources needed to pay the full costs of No Child Left Behind and the Individuals with Disabilities Education Act for 10 years.
Once we contemplate going back to historical levels of revenue collection (remember, we're at the lowest level since 1959), the ideological chains that bind us fall away, and the possibility of using government to meet a different set of priorities reemerges.
The larger point is that budgets represent our social priorities. They are national statements about the depth of our connection to each other, or lack thereof. Conservative policymakers, with their focus on individualism and privatization, have been successful in breaking these connections; this budget is a case in point. We should rebuild these connections around broadly shared principles and values that strengthen the common good and lead to a far more unified society.
Jared Bernstein is a senior economist at the Economic Policy Institute in Washington, D.C.
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