The Grand Old. [Spending] Party

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1 The Grand Old [Spending] Party

How Republicans became defenders of Big Government By Stephen Slivinski Not so long ago, Republicans were eager to make the case for smaller government and, at times, backed up their rhetoric with

Indeed, the budget they proposed in 1995 would have eliminated three cabinet agencies and more than 200 federal programs.

2 How Republicans became defenders of Big Government By Stephen Slivinski Not so long ago, Republicans were eager to make the case for smaller government and, at times, backed up their rhetoric with action. In 1994, they won a majority of the votes cast in Congressional elections for the first time since 1946 at least in part because they offered a credible alternative to government growth. Indeed, the budget they proposed in 1995 would have eliminated three cabinet agencies and more than 200 federal programs. Ten years later, the one-time party of fiscal prudence has ceded all claims to the high moral ground on budget matters, overseeing the largest increase in government spending since Lyndon Johnson s Great Society. And it is hard to argue that the change is an aberration created by the unanticipated costs of Hurricane Katrina or the war in Iraq. As a former speaker of the House Newt Gingrich recently lamented, Republicans have lost their way. The public s acknowledgment of the shift was slow to come, but does seem to have hit home. A George Washington University/Tarrance Polling Company survey last October found that only 32 percent of respondents trusted President Bush to hold down federal spending. Republicans in Congress did equally poorly in the poll, garnering a 35 percent approval rating on spending. Annual federal government outlays have grown from $1.86 trillion in 2001 to $2.47 trillion today. For the category of spending that the president and Congress haggle over each year which includes all non-entitlement programs budget growth has been even more dramatic. First Quarter

spending party THE FEDERAL BUDGET AS A PERCENTAGE OF GROSS DOMESTIC INCOME 23% 22.5 22 21.5 21 20.5 20 19.5 20.7% 20.2% 19 18.

5% president bush source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office.

Such discretionary spending in President Bush s first term grew 4.

8 percent figure doesn t include recent budget increases. Congress has already appropriated $62 billion for reconstruction after Hurricane Katrina, much of which will be spent in fiscal 2006.

3 spending party THE FEDERAL BUDGET AS A PERCENTAGE OF GROSS DOMESTIC INCOME 23% % 20.2% gop congress under clinton FISCAL YEARS 18.5% president bush source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office. STEPHEN SLIVINSKI, director of budget studies at the Cato Institute, is the author of a forthcoming book on bigspending Republicans, to be published by Nelson Current. Such discretionary spending in President Bush s first term grew 4.8 percent annually more than twice the rate during Clinton s two terms and equal to President Johnson s sharp ramp-up of Great Society programs. Note, too, that the 4.8 percent figure doesn t include recent budget increases. Congress has already appropriated $62 billion for reconstruction after Hurricane Katrina, much of which will be spent in fiscal One way to put these increases in historical perspective is to compare government outlays with GDP. At the end of the Clinton administration, federal spending equaled 18.5 percent of GDP down from 21.4 percent when Clinton was inaugurated. President Bush and the Republican Congress have expanded spending to 20.2 percent of GDP, a level not seen since ranking the presidents Analysis of federal spending during the past four decades confirms that George W. Bush is the biggest-spending president since Lyndon Johnson. Moreover, since the figures here only cover President Bush s first term, they do not reflect the full impact of disaster relief in the wake of Hurricane Katrina or the onset of the president s prescription drug benefit the largest expansion of Medicare since its inception in the 1960s. The drug benefit is expected to cost $849 billion over 10 years. President Bush s defenders assert that much of the growth in discretionary spending was essential to defending the United States against terrorism here and abroad. It previous page: christopher morris/vii 40 The Milken Institute Review

is true that 9/11 made anti-terror spending a budget priority. But the numbers don t make President Bush look any better when defense and domestic security are taken out of the equation.

The president s backers also point to growth in the large-entitlement programs Medicare, Medicaid and Social Security that make up over half of the federal budget.

In fact, federal government bean counters have even come up with a name for their quasi-protected status: mandatory expenditures.

The claim that high-priority defense spending, or so-called mandatory spending, is really to blame for the budget bloat is also refuted by the growth in real domestic discretionary spending for each

4 is true that 9/11 made anti-terror spending a budget priority. But the numbers don t make President Bush look any better when defense and domestic security are taken out of the equation. Domestic spending, excluding domestic security, has shot up by 35 percent in nominal terms since Bush took office. The president s backers also point to growth in the large-entitlement programs Medicare, Medicaid and Social Security that make up over half of the federal budget. These programs run on autopilot in the sense that annual appropriations are not needed to finance them, and they are often presumed to be untouchable. In fact, federal government bean counters have even come up with a name for their quasi-protected status: mandatory expenditures. The truth is, of course, that Congress can change these programs when and as it sees fit. The claim that high-priority defense spending, or so-called mandatory spending, is really to blame for the budget bloat is also refuted by the growth in real domestic discretionary spending for each full-term president since By this standard, George W. Bush has actually outspent Lyndon Johnson and ranks second only to Richard Nixon. The average annual rate of growth in domestic discretionary spending by the Johnson administration is lower than growth in total outlays primarily because President Johnson managed to cut non-defense spending (adjusted for inflation) in his final year. President Nixon s rate of budget growth rises because non-defense spending grew as a share of the budget during his presidency. George W. Bush s budget growth falls when adjusted for defense spending, but only by one-fifth of a percentage point. Simply put, defense, domestic security and entitlement spending are not driving the Bush budget bloat. It is in other corners of the federal budget notably, REAL ANNUAL GROWTH RATE OF TOTAL GOVERNMENT OUTLAYS BY PRESIDENT Johnson Nixon Carter Reagan G.H.W. Bush Clinton G.W. Bush REAL ANNUAL GROWTH RATE OF DOMESTIC DISCRETIONARY SPENDING 6% 5 5.0% 4 4.1% Johnson Nixon 1.5% 1.9% 1.6% Carter 2.6% 1.4% Reagan 3.8% G.H.W. Bush 2.1% Clinton agriculture and education programs where the real action can be found. 5.9% 0% 1% 2% 3% 4% 5% 6% source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office. bush s guns-and-butter years These trends are even more disturbing when you consider that, throughout the past 40 years, most presidents have restrained lowerpriority spending to make room for higherpriority spending when conditions warranted. During the Cold War, Ronald Reagan made room for a defense buildup by cutting nondefense spending (or at least by spending less 4.8% G.W. Bush source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office. 3% 4.1% 5% First Quarter

President Bush has only paid lip service to the need for setting priorities. He has, in effect, promised spending on guns and butter simultaneously.

And while defense spending did grow during the latter half of the Clinton administration primarily due to pressure from the Republican majority in Congress the defense budget was still smaller in

Bush s tenure has marked a return to the Johnson/Carter approach to spending: increases in everything.

($421 billion). Arguably, these recent defense increases are needed to address a threat no previous president has faced.

5 spending party in real terms). Likewise, presidents in office at the end of wars decreased defense spending in response to demobilization and increased non-defense spending, as Richard Nixon did after Vietnam. President Bush has only paid lip service to the need for setting priorities. He has, in effect, promised spending on guns and butter simultaneously. After the Cold War ended, presidents redirected resources from military programs. This peace dividend was evident in the budget of President George H.W. Bush. And while defense spending did grow during the latter half of the Clinton administration primarily due to pressure from the Republican majority in Congress the defense budget was still smaller in real terms at the end of the Clinton presidency than at the beginning. Non-defense spending grew by a total of 15 percent during his eight years in office. But George W. Bush s tenure has marked a return to the Johnson/Carter approach to spending: increases in everything. Defense spending (adjusted for inflation) is higher today ($440 billion) than it was at the zenith of President Reagan s defense buildup ($400 billion) or the high-water mark of Vietnam War budgets ($421 billion). Arguably, these recent defense increases are needed to address a threat no previous president has faced. However, the fact that the United States must cope with new challenges is no excuse for spending-as-usual elsewhere. Besides, the war on terrorism alone does not explain the magnitude of increases in the overall defense budget. The Congressional Budget Office estimates that the cost of fighting the war on terror (including money spent on the invasion, occupation and rebuilding of Iraq) accounted for just 16 percent of total defense outlays between 2001 and GUNS VS. BUTTER BILLIONS OF 2000 DOLLARS $ DEFENSE NONDEFENSE 150 G.H.W. G.W. 100 Johnson Nixon/Ford Carter Reagan Bush Clinton Bush FISCAL YEARS source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office. 42 The Milken Institute Review

In fact, the budget discipline that was the hallmark of the early years of the Republican majority in Congress began to flag even before Bush was elected.

6 the republicans reverse the revolution President Bush has not been alone in leading the spending binge. The Republican-controlled Congress has been fully complicit; it bears much of the blame, since it controls the purse strings. In fact, the budget discipline that was the hallmark of the early years of the Republican majority in Congress began to flag even before Bush was elected. In May 1995, the House passed a budget plan that called for the elimination of more than 200 government programs, including the abolition of the Departments of Commerce, Education and Energy. Most of the programs on the Republicans hit list were small and fiscally inconsequential, but there were also scores with budgets in excess of $10 million. The list ranged from the Low Income Home Energy Assistance Program a relic of the 1970s energy crisis to mass transit subsidies, the National Endowment for the Arts, the Corporation for Public Broadcasting, and bilingual education. Some federal operations were to be privatized (Amtrak and the Power Marketing Administrations, for example), while others were to be devolved entirely to states and localities. Non-defense spending declined for the first time since Ronald Reagan was in office, dipping from $302 billion in 1995 to $289 billion in But in 1997 non-defense spending began to creep up again, and two years later the inflation-adjusted budget for non-defense programs ($306 billion) was above what it had been when the Republicans gained their majority in Lazarus-like, programs that were terminated in 1995 rose from the dead. Aggregate real expenditures for 101 of the largest domestic programs that Republicans originally slated for elimination had grown 11 percent by the time President Clinton left office. What s even more remarkable is that overall inflation-adjusted spending for those programs grew by another 14 percent during President Bush s first term. Being targeted by the Republican majority seems to be a pretty good guarantee of eternal life. the price of united government Why the big change under W? Because the Republicans own both the House and the Senate. Divided government, with at least one house of Congress controlled by the President s opposition, tends to keep spending under control. As a onetime Reagan economic advisor William Niskanen noted, The only two long periods of fiscal restraint [since World War II] were the Eisenhower administration and the Clinton administration, during both of which the opposition party controlled Congress. When a Republican-dominated Congress was facing the big-spending tendencies of a Democratic White House, it was more apt to fight to keep government small. But when Republicans took control of both ends of Pennsylvania Avenue, the story changed. As political journalist Jonathan Rauch put it, Congressional Republicans and the White House egged each other on instead of reining each other in. Once the president proposes a budget, Congress typically adds more money to the kitty and treats the proposed spending limits as a floor. The main check the president has on you fund my boondoggle, I ll fund yours behavior is his veto power. But President Bush has chosen not to exercise that power. As a result, government has grown far faster than even he recommended in his already-profligate budgets. During the years of divided government under Clinton, the Republican Congress was able to keep Clinton s domestic spending on First Quarter

spending party a relatively short leash. Divided government between fiscal years 1996 to 2001 led to budgets that were at least $57 billion smaller than they would have been otherwise.

Between 2002 and 2005, Congress passed (and President Bush signed into law) non-defense budgets that were a total of $76 billion more than the president proposed.

the route to recovery The Republican spending binge has been assisted by a budget-writing process that stacks the deck in favor of ever-growing government.

Some means to this end appear in one of the explanatory volumes attached to the Bush budget.

7 spending party a relatively short leash. Divided government between fiscal years 1996 to 2001 led to budgets that were at least $57 billion smaller than they would have been otherwise. Contrast that with united government under the Republicans. Between 2002 and 2005, Congress passed (and President Bush signed into law) non-defense budgets that were a total of $76 billion more than the president proposed. Even if you set aside the budgets for fiscal 2002 and 2003 passed when Democrats controlled the Senate by a single vote united Republican government cost taxpayers a total of $44 billion. the route to recovery The Republican spending binge has been assisted by a budget-writing process that stacks the deck in favor of ever-growing government. Changing this process would not eliminate pressures to spend more, but could give more power to policymakers with the will to hold the line. Some means to this end appear in one of the explanatory volumes attached to the Bush budget. Other good ideas have come from fiscal conservatives in the House and the Republican Study Committee, currently headed by Representative Mike Pence of Indiana. Even the Blue Dog Democrats, a loose group of fiscally conservative members of the minority party, have gotten into the act, backing many of the reforms put forward by the Republican Study Committee. But the Republican leadership is extremely reluctant to put a lock on the proverbial refrigerator door. Some of the best of the budget-reformers ideas include: Adopting Zero-Based Budgeting. With baseline budgeting, the current approach, most programs run on autopilot. Indeed, under that approach, a 2 percent increase in spending can be called a budget cut if the expected baseline budget increase is 3 percent. Zero-based budgeting (first proposed by Jimmy Carter) assumes that every government program starts the year with zero taxpayer money and must justify its budget request from dollar-one. That approach would also make it difficult for politicians to use budget rules as a way to demonize those who want to tame the federal budget. Giving the Budget Resolution Teeth. Currently, the budget resolution that outlines the spending blueprint including the spending levels that both houses of Congress agree to at the beginning of each budget cycle is mostly symbolic. It has the same legal status as the sense of the Congress resolutions used to declare the legislature in favor of freedom of religion in China or to bless Washington Soap Box Derby Day. The Rules Committee in the House routinely exempts particular bills from the spending caps by forbidding actions that can be used to keep spending under the caps during the debate on the bill. A joint budget resolution, by contrast, would require the president s signature and would give the budget blueprint the force of law. Overturning the provisions in the budget blueprint would be harder, since a single committee could not exempt a budget bill from spending caps without a vote of the full chamber. Requiring a Two-Thirds Majority to Waive Spending Caps. Currently, spending caps can be waived by a three-fifths majority. Although imposing a two-thirds majority would not always keep a tight lid on spending, such a requirement would certainly make it marginally harder to ignore the fiscal restraint required by the budget resolution. One of the ways spending caps are waived is to declare new spending necessary to respond to an emergency. That designation, 44 The Milken Institute Review

THE COSTS OF ONE-PARTY GOVERNMENT BILLIONS OF NOMINAL DOLLARS $500 RATCHET EFFECT UNDER CLINTON: -$57 BILLION RATCHET EFFECT UNDER BUSH: +$76 BILLION ($38) 450 PRESIDENT S PROPOSAL ACTUAL NONDEFENSE

from the Office of Management and Budget and the Congressional Budget Office.

According to the Congressional Budget Office, between 1999 and 2002 Congress spent $154 billion on such dubious emergencies as the 2000 Census and the 2002 Salt Lake City Olympic festivities.

8 THE COSTS OF ONE-PARTY GOVERNMENT BILLIONS OF NOMINAL DOLLARS $500 RATCHET EFFECT UNDER CLINTON: -$57 BILLION RATCHET EFFECT UNDER BUSH: +$76 BILLION ($38) 450 PRESIDENT S PROPOSAL ACTUAL NONDEFENSE DISCRETIONARY SPENDING ($11) ($6) 400 ($21) 350 ($10) ($12) 300 ($20) ($7) ($5) ($3) FISCAL YEARS source: Author s calculations based on data from the Office of Management and Budget and the Congressional Budget Office. originally created to allow spending in response to unanticipated events like natural disasters, has been abused over the past few years. According to the Congressional Budget Office, between 1999 and 2002 Congress spent $154 billion on such dubious emergencies as the 2000 Census and the 2002 Salt Lake City Olympic festivities. Requiring a two-thirds vote to pass emergency legislation would make it harder to use this escape hatch. Although President Bush formally favors changes to budget rules to combat the abuse of the emergency provision, his administration has been one of the prime abusers of that loophole. According the Congressional Budget Office, over 70 percent of the money used to finance the wars in Iraq and Afghanistan was included in emergency spending bills, allowing the wars to be paid for outside the budget caps. Creating a Sunset Commission. Unlike the expiration dates on some tax cuts, there are no expiration dates on government programs. As a result, they often far outlive their nominal purpose. To remedy that, all spending programs should be given a life span of no more than 10 years, with a commission deciding whether individual programs deserve to survive beyond the sunset date. $ $ $ $ $ The Republican Party has discovered that the path of least resistance in Washington leads to bigger government. But as the Republicans stray ever further from their roots in fiscal prudence, one must wonder whether the easy way is also the politically myopic way. Who needs Republicans if they are as casual as Democrats with present and future taxpayers money? M First Quarter

working paper Spending UNder President George W. BUSh No March 2009 (corrected) by Veronique de Rugy

No. 09-04 March 2009 (corrected) working paper Spending UNder President George W. BUSh by Veronique de Rugy The opinions expressed in this Working Paper are the authors and do not represent official positions