2003 Budget completes big jump in spending

2003 Budget Completes Big Jump in Spending

By Glenn Kessler
Washington Post Staff Writer
Monday, April 15, 2002; Page A01

The Bush administration is poised to complete the biggest increase in government spending since the 1960s' "Great Society," the result of conducting the war on terrorism while substantially boosting the education and transportation budgets, according to a detailed analysis of government spending patterns.

Spending on government programs will increase by 22 percent from 1999 to 2003 in inflation-adjusted dollars, according to the analysis by The Washington Post and vetted by budget experts in both parties.

The president's 2003 budget proposals, combined with spending approved in the first year of his administration and the last two years of the Clinton administration, dwarf the spending increase from any four-year period since President Lyndon Johnson fought the Vietnam War while launching a war on poverty. Other periods of substantial increases in domestic spending, including the Nixon and Carter administrations, were accompanied by cuts in military spending. President Ronald Reagan boosted money for the military while trimming the domestic budget.

In the short term, the latest spending hike is one factor helping to pull the nation out of recession. But over the long run, some experts say, most of the spending will be a drag on the economy, heighten the risk of sustained budget deficits and limit the maneuvering room of policymakers when, 10 years from now, the government must help fund the baby boomers' health care and retirement needs.

"We should be very concerned," said John Cogan, a budget expert at the Hoover Institution who advised the Bush campaign. "Clearly, the defense and national security increases are warranted. The failure to offset those increases with reductions should be a source of concern. The wrong thing to do is not confront those choices."

President Bush has regularly warned against the perils of federal spending, declaring last year that "excessive federal spending threatens economic vitality." Although administration officials vow to control spending once the current emergency has passed, many experts believe that will be difficult, if not impossible. Last year's tax cut and the recent recession may result in the first back-to-back years of falling revenue since the late 1950s.

Now, the military is slated to get the biggest increase in two decades, matching the previous Bush administration's budget when adjusted for inflation. Homeland security needs dominate the nonmilitary budget in 2003, but nonmilitary spending had already risen dramatically in recent years as the nation briefly enjoyed budget surpluses.

Measured another way, federal spending, minus interest costs on the debt, will have grown by nearly 2 percentage points of the overall U.S. economy from 1999 to 2003 -- from 16.6 percent to 18.5 percent.

The total for the 2003 budget likely will go higher as pressure builds in Congress to add to the administration's budget requests in this election year and to enact new benefits such as a prescription drug plan for Medicare recipients. The calculations also do not include the effect of the administration's recent $27 billion supplemental spending request for fiscal 2002.

Bush administration officials say that they tried to clamp down on spending -- and intend to take a hard line in the future -- but that now they are focusing on ensuring the safety of Americans. Spending on annually funded programs, in inflation-adjusted dollars, rose about 9 percent in the last two years of the Clinton administration and is scheduled to grow nearly 15 percent in the first two years of the Bush administration.

"This is an important phenomenon that needs to be closely watched," Office of Management and Budget Director Mitchell E. Daniels Jr. said after reviewing The Post research. "We cannot make the 'guns and butter' mistake" of the 1960s, he said, referring to simultaneous spending hikes for military and domestic items.

Daniels said he believed much of the homeland security spending would be one-time expenses, such as building a vaccine stockpile, and thus would not be built into future spending. He said the administration has tried to slow the growth in other spending. For example, after approving last year a substantial increase in education spending -- which has risen nearly 50 percent in inflation-adjusted dollars since 1999 -- the administration has proposed essentially to freeze education spending until 2007.

The White House says that if homeland security and Sept. 11 emergency spending is excluded, nondefense spending rose by 3.3 percent in 2002 and is slated to decline by 0.4 percent in 2003. In a meeting with congressional leaders last week, Bush vowed to veto spending bills that exceeded his spending targets, a White House official said.

"If we are not prepared to roll back spending" once the current crisis is over, Daniels said, "we will make a fundamental mistake."

That may be difficult. Robert Reischauer, president of the Urban Institute and a former director of the Congressional Budget Office, noted that only once during the 1990s, when the government struggled to get the deficit under control, did the spending on annually funded domestic programs decline after inflation is taken into account.

"Congress didn't really show a great ability to hold down nondefense discretionary spending," Reischauer said.

Kevin Hassett, a budget expert at the conservative-leaning American Enterprise Institute, said the emergence of budget surpluses led directly to the spending growth. "It is really obvious that when there is money around, they will spend it, even if they are Republicans," he said.

Hassett noted that the administration last year pushed for a tax cut by arguing it would restrain spending. "They said it would starve the beast," he said. "But we have a hungry beast who is somehow finding food anyway. . . . You've got to wonder how fiscally conservative the Bush guys are. Granted, you could say there are a lot of priorities. But shucks, couldn't we find other things to cut?"

Peter Orszag, a former Clinton economic aide and now fellow at the liberal Brookings Institution, said much of the spending growth could be attributed to pent-up demands after a period of frugality.

"These are significant increases, but from very low levels," Orszag said. "Discretionary spending as a share of the gross domestic product had fallen to low levels. There were needs and demands that had been built up and needed to be addressed."

Orszag said the revenue loss from the Bush tax cut in future years will begin to dwarf the spending increases in the recent past.

Thomas Kahn, Democratic staff director of the House Budget Committee, noted that the calculations do not include the huge defense buildup that the administration plans beyond 2003.

"The story is even more troubling than these numbers suggest," he said. "Republican rhetoric suggests they are fiscally tight. But they are big spenders as long as it is on programs they want to spend money on."

Reischauer said that despite the recent emergence of deficits, the overall fiscal picture is still bright, in part because the deficit this year will be relatively small. "We are not in deep doo-doo by the standards of the 1980s and 1990s at all," he said.

But he added, "the pressures for additional spending are going to be very strong. Institutionally, the restraints are crumbling. The political environment is not auspicious" given the narrowly divided Congress.

"The administration doesn't want to lose the House, and it is mindful of the fallout of any discipline they impose on their election chances," Reischauer said. "They can talk the talk. Can they walk the walk?"