Leviathan's Diet

Unpleasant reflections on the budget

Last week, I watched fiscal policy analysts from Cato and the Heritage Foundation join hands with Bill Clinton's former national economic adviser Gene Sperling and Urban Institute head Robert Reischauer to sing "We Are the World" in perfect harmony. Or at any rate, it was the budget wonk equivalent of such a scene.

The Urban Institute's budget roundtable was so packed with number-crunching heavies that one participant joked that some ought to be dispatched to an "undisclosed location" lest terrorists wipe out the nation's budget expertise in one fell swoop. It was also probably the least contentious event I've attended in Washington, D.C. The heavies were in accord: The budget for fiscal year 2005 exhibits the kind of fiscal irresponsibility seldom to be found outside the wet dreams of credit card executives.

On Planet Administration, everything's fine. To the incredulity of even many supporters, Bush told Meet the Press this weekend:

If you look at the appropriations bills that were passed under my watch, in the last year of President Clinton, discretionary spending was up 15 percent, and ours have steadily declined.

If a puppy beaten for the first time could speak, it would sound like Andrew Sullivan, who concludes on The New Republic's website that "the president doesn't know what he's talking about, or he's lying, or he trusts people telling him lies." Tim Noah at Slate goes further, accusing Bush of lying to small government conservatives about his spending habits, citing work by Brian Riedl at Heritage. Erstwhile Bush rival Sen. John McCain (R-AZ) notes the president's uncanny resemblance to an inebriated seaman.

Now, in fairness to Bush, this is not quite right. Whether or not we want to credit Bush with honesty, he surely deserves the benefit of the doubt when it comes to political strategy, and you just don't lie about stuff that's this easily verifiable. There are plenty of arenas in which bald-faced lies to the American people require only sufficient ruthlessness on a president's part. But to dissemble about something so easily checked, about numbers that are a matter of public record, available on the White House's own website, would require audacity worthy of Shaggy.

So what on our blue-green spheroid was Bush talking about? Well, his claims do track those of OMB director Josh Bolten in a recent Wall Street Journal op-ed… sort of. If you're willing to charitably add the qualifier "non-defense domestic" to Bush's statement, it's true that the rate of growth in budget authority, as opposed to real outlays, has declined under Bush. The increase in Clinton's final year in that category was indeed 15 percent, with successive increases under Bush of 6, 5, and 4 percent, as borne out by table S-4 of the OMB's budget charts. His budget for fiscal 2005 proposes only 1 percent growth, though the president has shown willingness in the pass to sign appropriations well in excess of his proposals.

So we're dealing with sloppy language here, rather than outright mendacity. But what is strictly true can still be misleading. Heritage's Riedl, for instance, points out that Bush and Bolten chose an aberrant baseline year, 2001, as their point of comparison, and characterizes administration attempts to blame growth in outlays on the "inherited" Clinton budget authority as "nonsense." If all authorized appropriations were spent out in the same year rather than staggered over several years, he observes, current outlays would be higher still, as even a slowed rate of increase is an increase.

But the numbers used to justify a rosy budget scenario are misleading in far deeper ways. For one, the focus on non-defense discretionary spending is a bit bizarre, given the relatively small fraction of the budget—less than a fifth—represented by that component of the budget. Entitlement spending is often characterized as "mandatory spending," but at the end of the day, all outlays are "discretionary." Cuts in certain areas may be politically unpopular, but they are not impossible.

Claims that the deficit will be cut in half within a decade—notice the absent mention of what happens one year later—rest upon some improbable assumptions as well. Budget projections don't even contain a placeholder—as would be common in the case of, say, Medicare spending— for some $50 billion in "supplemental" appropriations that the administration has already announced its intention to seek for Afghanistan and Iraq, prompting the chiefs of the armed services to take the unusual step of questioning the C-in-C's "worry about it after the elections" approach. Bound by current law, the projections assume that the phase-out of the estate tax and Bush's other tax cuts will expire within that ten year window, though Bush has called for these to be made permanent. They also assume a near political impossibility: That there will be no indexing of the alternative minimum tax to prevent "bracket creep" that would increase the number of households subject to the tax from about two percent to around a third by the end of this decade. In other words, the administration simultaneously trumpets its deficit reduction strategy even as it seeks to change the assumptions that allow projected deficits to shrink.

Linda Blimes, a professor of budget management at Harvard's Kennedy School, argued in a recent Washington Post op-ed, suggests that the fiscal "perfect storm" of the Reagan era has led some in the administration to believe (erroneously) that deficits don't matter. But most economists believe that deficits present real barriers to growth: One estimate suggests that government competition for scarce capital at current rates of debt accumulation would result in a reduction of about $1,800 in annual income for the average household. And, of course, money to service that debt must come out of the economy eventually.

Several at the Urban panel suggested that the president's current proposal constitutes a "stealth" budget, with a more serious one to come in 2006. If that is an unsettling prospect, it is less so than the alternative: that the administration has bought into the dubious proposition that conservative goals can be achieved by running up deficits to constrain future spending.

The logic behind this "starve leviathan" theory is not totally mad, though it bears a creepy resemblance to the Marxist revolutionary slogan that things "have to get worse before they get better." If deficit pressure caused some programs to be eliminated completely, it's at least conceivable that the political momentum behind those programs might dissolve, forestalling their reintroduction when balance was restored. But this is clearly a huge gamble, and one that relies on the diffuse harms of deficits being sufficient to outweigh the muscle of a number of concentrated constituencies.

Perhaps, then, it is time for proponents of smaller government to let themselves be inspired by Urban's wonky lovefest and offer a compromise to the other side: We'll accept the rollback of the Bush tax cuts if you join the fight on the spending side.

This constitutes, I realize, minor heresy to many for whom tax cuts are all but synonymous with shrinking government. But if we're really committed to restrained government in principle, and not merely our personal short-term balance sheets, we should acknowledge that the two are here opposed. A tax cut financed by deficits is ultimately no more responsible than a spending program financed the same way. Douglas Holtz-Eakin, the Republican-appointed director of the Congressional Budget Office, has said that making the tax cuts permanent at the cost of higher deficits would, pace the president, have a "modestly negative" net effect on long term economic growth. And just as plausible as the "starve leviathan" hypothesis is the theory that combining spending growth with tax cuts hides the true cost of burgeoning programs, creating a political culture in which there's no will to restrain appropriations.

In a world where legislators felt obligated to keep outlays connected by some tenuous thread to revenues, tax cuts would entail smaller government. But we don't live in that world: Absent that condition, tax cuts aren't the same as smaller government. Smaller government is smaller government. If fiscal conservatives want to have any credibility with moderates and liberals when they insist that federal spending on education or healthcare be rolled back in the name of responsibility to future taxpayers, we're going to have to begin acknowledging that fact.