Get Real: Cutting Discretionary Spending Alone Just Won’t Work

Posted March 9, 2004 at 1:52pm

It is budget season. It is not the season to be jolly. The Senate began its debate on the fiscal 2005 budget resolution Monday, with the House kicking off its debate today. If you are partial to car crashes, train wrecks, wrestling matches and bloodshed, this will be a fun time. [IMGCAP(1)]

President Bush is threatening to cast his first-ever veto — of a highway bill that is likely to garner overwhelming support from Republicans and Democrats alike in Congress. The previous GOP unity on most issues is in jeopardy over every spending area, including defense, and even over scheduled tax cuts. Republicans can’t count on Democrats to cut them much slack on their budgets.

Alarm over looming deficits has hit fiscal conservatives. Good — although the alarm has just now hit people who supported every tax cut proposed in the past three years and called for more, who wrote the tax-cut plan in 2001 to have phony expiration dates for many of the cuts so that their long-term fiscal cost would be disguised and so they could avoid tougher budget rules, who papered over the looming problem of the Alternative Minimum Tax triggered by the 2001 tax cuts and made sure it would not be addressed until after the 2004 election, who supported all the spending increases in entitlements, defense and many domestic programs, and who supported a Medicare prescription drug plan that clearly had costs ballooning into the trillions after the first 10 years.

The two GOP Budget chairmen, Sen. Don Nickles (Okla.) and Rep. Jim Nussle (Iowa), have to their credit ignored or confronted some of the obvious gaps in the Bush budget that didn’t pass the laugh test. Nussle includes up to $50 billion for future operations in Iraq, compared to zero in the Bush budget. Nickles puts some modest check on the Pentagon budget and suggests that perhaps not all the 2001 tax cuts should be made permanent right now.

The Nickles budget resolution provides $814 billion in discretionary spending, $9 billion less than the White House would provide, and a 3 percent increase from fiscal 2004. But of course, like the Bush budget, the two “big enchiladas” of Defense and Homeland Security, slated for 15 percent and 5 percent increases, take away all the slack and more, necessitating cuts in most other areas of discretionary domestic spending. Democrats, not surprisingly, were critical of the numbers and the continued tilt to the wealthy via the tax cuts, but many Republicans had their own criticism of the Nickles plan as too tough on Defense. They vowed to pass a floor amendment restoring the full 7 percent hike in Defense proposed by Bush.

The Nussle budget plan freezes non- Defense, non-Homeland Security discretionary spending at last year’s levels; increases Defense spending by 6.6 percent and Homeland Security spending by 7.1 percent; and bans earmarked projects for one year.

The good news is that Nickles and Nussle at least acknowledge the looming fiscal train wreck and don’t just pay lip service to the budget problem. The bad news is that their two budgets are not really realistic and are far from adequate. Nussle, for example, says he can meet the discretionary freeze requirement by cutting out the waste, fraud and abuse he identified last year. That will work as well as every previous effort to find billions and billions of savings in the waste, fraud and abuse categories, sparing any real fruitful programs any real pain. Not! Nor is the Nussle plan to ban any new entitlement expenditures for a year — meaning, among other things, no adjustments along the way to the new Medicare prescription drug plan — a realistic approach, given our election-year politics.

And like Bush’s budget, neither plan acknowledges the looming disaster of the Alternative Minimum Tax, which will have to be changed next year, to the tune of up to $700 billion in more tax revenues lost over the succeeding 10 years. How will that shortfall be made up?

But the biggest problem is that both these budgets, like that of the president, in effect turn all their big guns on the small portion of the budget that is discretionary domestic spending, which simply cannot deal with it. Deficits of up to $524 billion will not be reduced realistically, much less eliminated, by setting a mind-boggling 85 percent of the budget and virtually the entire revenue base aside as basically off-limits.

There is one proposal out there that would help — at least based on past experience. That is Sen. Pete Domenici’s (R-N.M.) push to get the expired pay-as-you-go rules put back in place. Much maligned when they were instituted as part of President George H.W. Bush’s budget compromise in 1990, the “paygo” rules had a huge impact, contributing mightily to the budget discipline we saw in much of the ’90s. They are really quite simple: Proposals to increase any area of the budget, or to cut taxes, have to be paid for by corresponding (and simultaneous) budget cuts and/or tax increases. The president has paygo lite in his budget, but sadly, I don’t see much sign that real paygo will be seriously on the table this year.

We need to restrain the future growth of the Big Three entitlements. That means things like addressing retirement age and cost-of-living adjustments. But we also must come up with realistic amounts of revenue to pay for these entitlements, for robust defense and homeland security and for other real domestic priorities.

Both things require more than paygo in the end — they require broad bipartisan cover to make tough choices. These days, that is the most elusive element of all.

Norman Ornstein is a resident scholar at the American Enterprise Institute.