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Sky High

BY Alexis Simendinger, David Baumann, Carl M. Cannon, and John Maggs
02/07/2004
by Alexis Simendinger, David Baumann, Carl M. Cannon, and John Maggs on 2/7/04.

"You never know which mode of governance you'll see from Bush," said Republican Stephen Moore, president of the political action committee Club for Growth, as he mused about the president's $2.4 trillion budget blueprint for fiscal 2005 and the potential for a second term. Some of President Bush's recent actions,
including his signing of the omnibus appropriations bill for fiscal 2004 (rife with what some Republicans perceive as wasteful spending), plus revelations about the actual growth in government spending under Bush, and his fanfare about sending astronauts to Mars, are sparking criticism of the president's fiscal stewardship. "Republicans are spending more money than Tip O'Neill ever
did," said Moore, referring to the late Democratic House speaker of the Reagan
era. "All those things have really hurt Bush in the polls," Moore added. And on
top of that, this year's deficit forecast has reached $521 billion.

The public's assessment of Bush's job performance, their appraisal of his
handling of the economy, and their approval of his handling of Iraq have all dropped below 50 percent for the first time in three years, according to the latest survey by the Gallup Organization. That's not a position of strength from which to hand Congress a budget for the fiscal year that begins on October

1. And in fact, Congress is poised to set Bush's budget aside and largely build one of its own.

If presidential elections are referenda on the incumbent, then Bush's
credibility has surely emerged as an election issue at the start of his fourth year. And with the release of this proposed budget, it becomes evident that not all of the president's credibility issues center on Iraq. In the immediate future, however, the thinking at the White House seems to rest on the assumption that few voters are going to support or oppose him based solely on the nation's existing or envisioned red ink. "From 1982 to 1997, we were in a world where the dominant issue was reducing the deficit," said C. Eugene
Steuerle, a former Reagan Treasury Department official and now a tax economist with the Urban Institute, a nonpartisan economics and social-policy
organization based in Washington. "From 1997 to today, there has been a
remarkable turnaround.... We've been in a world where Congress and the White
House haven't been accounting for the losers. Who pays? The real question is,
How are they going to move into a period where the losers -- that is, the
payers -- are much more clearly recognized?"

Politics: 'Let's Tell the Truth'

Conditions may be present for the Perfect Deficit Storm: Low tax rates; a
stagnant job market; huge and unanticipated military expenditures; new entitlements; a nonmilitary discretionary budget pressured to encompass new commitments, including the administration's moon and Mars missions, education funding to states, and a pending energy bill; the election-year climate; and extremely polarized political parties in no mood to work together.

When George W. Bush campaigned for the presidency, the budget was in the black
for the first time since Lyndon Johnson occupied the Oval Office. Bush's
approach was simple. "Some say that a growing federal surplus means Washington has more money to spend," he said in accepting the Republican presidential nomination. "But they've got it backwards. The surplus is not the government's money. The surplus is the people's money."

When the recession emerged in 2001, the president pitched his tax cuts as a
means to jump-start the economy. The cuts, along with the effects of the
recession and increased defense spending in the wake of 9/11, have blown a hole
in the federal budget.

Bush's predicament is not new; it's cyclical. The rub is that the available
avenues to tackle these problems have been weakened by competing political
forces, including institutional cynicism about the deficit itself. Minor-league
deficits in times of war and recession are generally deemed acceptable. Big-
league deficits, accompanied by tax "relief" as far as the eye can see, are
another matter.

William A. Niskanen, who was an economic adviser in the Reagan White House,
recalls that in the 1980s it was House Ways and Means Committee Chairman Dan
Rostenkowski, D-Ill., who sponsored the Reagan tax cut, and two other
Democrats, Sen. Bill Bradley of New Jersey and Rep. Dick Gephardt of Missouri,
who proposed the 1986 corrective. "Today you can hardly imagine Tom DeLay and
Nancy Pelosi agreeing on the time of day," Niskanen noted, referring to the
conservative House majority leader from Texas and the liberal House minority
leader from California. "There is much more polarization than in my day."

Another problem is that in the last 25 years, there has been almost an inverse
relationship between straightforward attacks on the deficit, and political
benefits for taking it on. Just ask Jimmy Carter, Walter Mondale, or the
current president's own father. In 1980, George H.W. Bush famously described
Ronald Reagan's vow to cut taxes and build up American military spending, all
while balancing the budget, as "voodoo economics." That stance ensured him a
second-place finish to Reagan in the Republican primaries. Bush was correct in
believing the numbers didn't add up, but the political cost was borne by
Carter, who lost to Reagan, and later by his vice president, Mondale.

"Let's tell the truth," Mondale said at the 1984 convention that crowned him
the Democratic presidential nominee. "Mr. Reagan will raise taxes, and so will
I. He won't tell you. I just did."

But Mondale lost, and badly. The funny thing was that Reagan, like Franklin
Roosevelt before him, considered deficit spending a sin -- as did Carter, who
vowed to eliminate the deficit when he ran for president in 1976. Instead, it
was still $41 billion in 1979, and ballooned to $74 billion (roughly $147
billion in today's dollars) in 1980. It was these numbers that Reagan, the son
of an alcoholic, derided in almost moralistic terms, repeatedly telling
Americans that this national propensity toward "binge spending" must be
curtailed.

To convince himself he had not fallen off the wagon, Reagan swallowed the sweet
elixir of supply-side economics, a theory never accepted by his own budget
advisers, but subsequently embraced -- in Reagan's name -- by Republicans of
all stripes.

Reagan's former vice president, the elder Bush, learned his lesson in 1990 when
he assented to a deficit-lowering package of spending decreases and revenue
increases that defied the most-conservative members of his party. Most
economists believe that Bush's move greatly helped the economy begin a gradual
recovery in the mid-1990s, but conservatives still characterize it as a
betrayal of Bush's "No New Taxes" pledge. In the 1992 campaign, Bush was
ambushed on the budget from the right (by Pat Buchanan), from the center (by
Ross Perot), and from the left (by Bill Clinton).

President Clinton, who made no such pledge, shepherded through Congress a
budget that primarily raised revenues from two sources: a 4.3-cent-per-gallon
gasoline tax and an increase in the income-tax rates of top wage earners.
Clinton's vaunted deficit-reduction efforts provided no real curbs on spending,
but the increased revenues were real enough, and the notion of a Democrat who
was willing to address the deficit made the financial markets giddy.

Clinton was not rewarded by Washington's power base or by the voters, however.
GOP intransigence on Clinton's budget was unanimous, but the Republicans didn't
pay a price for their wildly inaccurate predictions of economic doom and gloom.
In fact, the party swept to power in both houses of Congress in the 1994
midterm elections. Conversely, after Republicans goaded Clinton into proposing
a balanced budget, it was the GOP that suffered in 1996 and 1998 when the
president delivered.

Can this track record of absurdity -- that ineffective government is good
politics -- be what Bush is counting on? It's hard to see what else he has up
his sleeve. His current budget claims a deficit of $1.3 trillion over the next
five years, but even that whopping number likely is too low, since the
administration hasn't included all of the government's anticipated costs, even
those as immediate as the next round of funding to support the occupation in
Iraq.

"The economy is improving, and that's good for Bush," said Michael J. Boskin,
who was chairman of the White House Council of Economic Advisers during the
first Bush administration. Boskin advised the younger Bush to cut taxes in
2001. "There is no doubt the tax cuts have helped the recovery, no doubt at
all. But something will have to be done on the deficit side."

If Bush is counting on Democrats to bail him out, he might not have much luck.
Pelosi slams Bush on Medicare, not because his estimates of the new
prescription drug benefit have risen from $395 billion over five years to $530
billion, but because she wants a much costlier benefit. Democratic presidential
front-runner John Kerry may not have voted for last year's $87 billion
supplemental request on Iraq, but he hasn't mentioned bringing the troops home,
and he calls for larger expenditures for homeland security, education, and
other programs.

The upshot, says former Reagan aide Niskanen, is likely to be a huge and
involuntary transfer of "intergenerational equity," as this generation of
voters spends for programs that the next will have to fund. "I despair about
this budget," Niskanen says. "I don't think Bush is being honest with the
world. I'm not sure he's being honest with himself."

The Forecast: Rosy Works Her Magic

Like many budget directors before him, Joshua Bolten was tempted by a beautiful
woman. Ever since she turned the head of David Stockman 20 years ago, she has
been seen regularly at the Eisenhower Executive Office Building. Stockman,
Reagan's first budget director, called her Rosy Scenario, and eventually
confessed his dalliance in an interview with The Atlantic Monthly.

It's the same story for every budget director. Given the unattractive results
of the politics and logrolling that go into making a budget, it is tempting to
lean back and let Rosy massage the numbers. Stockman described how he
succumbed, and the context may sound familiar: After a massive tax cut and a
huge increase in defense spending, he was presented with alarming projections
of growth in the deficit. Against his better judgment, he embraced some
unrealistically optimistic forecasts of economic growth and revenue from tax
cuts, and he produced a budget masking a fiscal imbalance that in 1983 would
turn out to equal 6 percent of gross domestic product -- the equivalent of $700
billion today.

At first blush, it appears that Bolten has resisted Rosy's charms. The Bush
administration's assumptions about economic growth and revenue are only
slightly more optimistic than the expectations of the nonpartisan Congressional
Budget Office. The White House estimates that the U.S. economy by 2009 will be
only 1.4 percent larger than CBO predicts; the administration's estimate of the
unemployment rate between now and then matches CBO's numbers, and projected
interest rates are almost identical.

Look elsewhere, however, and there are signs that Rosy has found a new way to
work her magic. The new budget doesn't make unrealistic assumptions about
economic performance and revenue -- instead it puts forward a rose-colored view
of the government's discipline in controlling spending. While this has been a
dependable strategy for budget directors in the past, this year's effort sets a
new standard for chutzpah.

First, some background. The years 1992 to 2002 were times of relative fiscal
restraint by the federal government. Spending limits in force for most of that
time, a sharp decline in the military costs after the end of the Cold War, and
a president determined to leave a legacy of fiscal success combined to keep the
overall growth in government spending to 45 percent in those years, compared
with an 85 percent increase from 1982 to 1992. Discretionary spending, which
excludes Social Security and other entitlements, grew an average of 3.2 percent
per year from 1992 to 2002, with the biggest growth coming after 1998, when
budget surpluses appeared on the horizon.

Under Bush, the demands on government escalated sharply: The first recession in
10 years raised costs for government benefits such as unemployment insurance,
and the 9/11 attacks drove up spending for homeland security and the military.
As a result, discretionary spending rose an average of 12.8 percent a year in
2002 and 2003, according to CBO, and the Office of Management and Budget says
it will rise another 9.9 percent this year.

Against this background, consider the Bush administration's predictions of how
discretionary spending would increase from 2004 to 2009 -- a span of six years,
including the current fiscal year. According to the new budget, discretionary
spending for that time will increase by a total of 3.7 percent. That's not an
average annual increase. That's the total for six years.

This is a mind-boggling number. According to the administration, discretionary
spending will rise 9.9 percent in 2004 and then only 0.6 percent in 2005.
Discretionary spending is actually supposed to decrease by a full 2 percent in
2006. Then it edges up 1.3 percent in 2007, and 2 percent in both 2008 and
2009.

While similarly slow growth in spending persisted for several years in the
1990s, it took place during a military build-down and only because of statutory
spending limits that Bush and Congress have rejected. Once the limits came off,
spending exploded.

If we lived in a pre-9/11 world, with no threats at home or abroad, and no cost
of occupations in Afghanistan and Iraq, these numbers would still seem far-
fetched, given government's historically inexorable growth. But with these
large and unaccountable costs still expected, and with a president who hasn't
yet tried to control nondefense discretionary spending, this forecast seems
delusional. By comparison, the administration's conventionally unrealistic
estimate of modest growth in entitlement costs, in the face of Bush's promise
to tackle the looming crisis in Social Security and Medicare, is hardly worth
mentioning.

If he is sincere, then Bush intends to dedicate his second term to something
far more radical than tax cuts: essentially freezing the growth of much of the
federal government. On the other hand, if spending increases as it has, then
deficits could quickly create economic problems never seen before.

Programs: The Entitlement Squeeze

President Bush says the bleak federal budget picture over the long haul can be
chalked up to ... population. The United States needs more workers, and fewer
old people: "The main source of the long-run fiscal problem is demographics,"
Bush's fiscal 2005 budget asserts. On its face, Bush's diagnosis is true
enough. The White House is well aware of the red-ink anxiety that lurks over
the horizon, just after Bush would be completing the second term he hopes for.
The first Baby Boomers become eligible for early Social Security retirement
benefits in 2008, and for Medicare in 2011.

"While the outlook for the budget improves considerably over the next five
years," the president's budget document concedes, "looking at the budget over a
much longer term yields a less encouraging picture.... Fundamental forces are
at work that will create serious fiscal problems if left unaddressed."

So, while projecting a staggering "peak" deficit of $521 billion for fiscal
2004, and a more serious long-term problem with entitlements just ahead, what
Bush is not doing in his fiscal 2005 budget is as attention-getting as what he
is doing. The president is not seeking to balance the budget. He is dead-set
against juicing revenues by raising taxes, and he is fighting to make
previously enacted tax cuts permanent. He is accepting the trend line of
America's aging -- and eventually less-productive -- population (which by
itself will erode the nation's GDP in the future). Bush is not championing
immediate action to keep Social Security afloat when the Baby Boomers retire,
or to retreat from the exploding costs of Medicare.

In the last year of this term -- an election year -- the president is kicking
the can down the road, something he had said he would not do if he came to
Washington: "I came to office to solve problems, not to pass them on to future
presidents and future generations," he has repeated in numerous speeches to
supporters.

The president does want to put the brakes on federal spending for programs he
doesn't see as priorities. In taking that stand in his fiscal 2005 budget --
calling for a basic freeze, or 0.5 percent growth in spending for nondefense,
non-homeland-security spending -- Bush is trying to appease Republican
conservatives who want to shed the unwelcome "bigger government" reputation
that has dogged their control of the White House and Congress.

But the administration's focus on curbing discretionary spending -- on crop
insurance, Amtrak, and housing assistance for the poor, for example -- cannot
fix a growing shift of obligation toward mandatory government spending that is
well under way. The 21st-century budget debate will have to extend far beyond
the terrain of discretionary spending that Bush staked out this week. The
important debate, still ahead in Washington, will have to dig deep into the
breadth of government responsibility that Americans favor, the program costs
attached to those expectations, and the revenues needed to pay those bills.

The "intergenerational equity" debate forecast by Niskanen and many other
experts is not hyperbole. Today, Social Security, Medicare, and Medicaid
account for a combined 8.5 percent of GDP. That still leaves room in the budget
for other funding choices. By the time Bush is 90, in 2040, entitlements are
projected to double to 17 percent as a share of GDP, according to CBO. And by
the time Bush's daughters draw Social Security and Medicare benefits, around
2060, about one-fifth of all government spending could be absorbed by those
three programs alone. When defense and interest obligations are woven into the
picture, the wiggle room for other federal spending all but disappears if
today's fiscal decisions remain unchanged. Total government spending as a
percentage of GDP has been on an upward trajectory since 2001 and is now at 20
percent, according to OMB.

"If you don't do anything, the Boomers are going to push that number to 30
percent," said Barry Anderson, a former assistant director for budget review at
OMB and former deputy director at CBO. "What are you going to do? Your choices,
Mr. and Mrs. America, are: You can cut benefits to the oldsters; increase
current taxes on the youngsters, meaning those working; cut other government
spending; borrow from the next generation; or convert, at least in part, from
defined benefit to defined contribution [for retirement]. The answer is, of
course, that we are going to do all of those. I don't think we have a choice.
How hard it is to do all of those is, in part, a function of what we do today,
this year."

Taxes: Are They Headed Up?

According to former Treasury Secretary Robert Rubin, the greatest barrier to
confronting the government's fiscal problems is a rhetorical one. "We have a
president who has made it clear that he is committed to tax cuts, that he
actually wants to cut taxes more," Rubin said. "He's painted himself in a
corner." Rubin and the leading Democratic presidential candidates call for a
combination of spending limitations and tax increases to put the government
back on the path to a balanced budget, and they contend that re-electing Bush
would result in fiscal disaster.

Nevertheless, the conventional wisdom is that most politicians of both parties
will support extending Bush's cuts and do whatever they can to avoid raising
taxes. "I think what you have is a situation where the public has been led to
expect lower taxes, and most politicians -- Republicans and Democrats, I would
add -- find it easiest to go along," said Rubin. Peter Orszag, a former Clinton
White House economist, says that Bush can count on most lawmakers to support
his proposal to make his tax cuts permanent, because "it is just very difficult
for a politician to justify what looks like a tax increase."

It is certainly hard to find a Republican who thinks that Bush, with a GOP-
controlled Congress, would ever agree to raise taxes. "I just can't see him
agreeing to raise individual income-tax rates," said Bill Archer, former GOP
chairman of the House Ways and Means Committee. As a presidential candidate,
Bush signed the Taxpayer Protection Pledge, opposing "any and all efforts to
increase the marginal income-tax rates for individuals and/or businesses."

But if Bush does stick to his guns, he'll be defying history. The Treasury
Department has published a history of tax cuts and increases, and it shows that
cuts such as those championed by Bush have a brief shelf life. According to
Treasury, there have been three large tax cuts between World War II and the
current administration: in 1945-1948, in 1964, and in 1981.

According to Treasury, the 1945-1948 cuts were erased by tax increases within
three years, two of them in 1950 and another in 1951. The 1964 tax cut was more
than offset by tax hikes in 1966 and 1968. Reagan's 1981 cut lasted longer: It
wasn't until the 1990 tax increases that substantially all of that tax
reduction was offset, but the crucial point is how quickly the tide turned in
the face of growing deficits. Reagan wiped out more than one-third of his cut
in 1982 and he raised taxes again in 1983 and 1984. He signed onto a 1986 tax
"reform" that was billed as revenue-neutral in the long term but was an
immediate jolt for taxpayers, raising taxes $18 billion in 1987, or 2.3
percent.

Opinion leaders commonly call tax increases politically impossible, but it
would be more accurate to say that, so far, presidents have found it
politically impossible to avoid tax increases: Reagan didn't; Bush's father
didn't; and Clinton didn't hesitate to raise taxes after he was elected on a
promise to control the deficit.

And at least one well-known Republican is willing to predict that Bush, if re-
elected, can't buck history. Former New Hampshire Sen. Warren Rudman sponsored
legislation in 1985 that established limits on federal spending, and he backed
the 1990 budget deal that raised taxes in combination with spending cuts to
reduce the deficit. He has no doubts that such a compromise will be needed
within a few years: "In that timeframe, when I think this deficit really starts
to [hurt the economy], the president isn't going to have any choice."

Bush is campaigning on a promise to make his tax cuts permanent, rather then
letting them begin to expire at the end of 2010. But conservative commentator
Bruce Bartlett agrees with Rudman that higher taxes in some form will be needed
sooner than that to build a congressional consensus for major budget cuts.
Bartlett says, "You won't find a Republican in Congress who'll admit" that
taxes will be going up, "but there's not room enough to cut." Discretionary
spending outside defense represents less than a fifth of the budget.

Rudman and Bartlett agree that Bush will probably avoid raising individual
income-tax rates, which were the heart of his tax cuts in 2001 and 2003, but
they say he has other options. Bartlett predicts that corporate taxes will be a
likely target if President Bush is re-elected. Rudman noted that most of the
tax increases after the Reagan cuts targeted businesses, and that Bush's
Treasury Department has already been pushing a campaign to "close business-tax
loopholes." Archer, who now lobbies for business-tax cuts on behalf of
accounting firm PricewaterhouseCoopers, agreed that businesses would be the
likeliest victims of new tax hikes to close the deficit. Although there is an
impression that Bush's economic policies have been skewed toward business,
Archer said, "that hasn't been the case for taxes."

Rudman foresees splits among conservatives if the president must choose where
to raise taxes. If one target for an increase is Bush's tax credits for
children, Rudman said, he could imagine "an unholy alliance" between social
conservatives and the urban poor in lobbying against such an increase.

But the most likely vehicle for a tax increase could again be "tax reform."
Bush has often spoken of his desire to simplify the tax code, and his pending
proposal for tax-free savings accounts represents a radical reform. Bartlett
noted that "closing loopholes" to raise revenue was a major selling point for
tax reform in 1986, and it would be easiest to use a top-to-bottom revamping of
individual taxation to hide the fact that some people's taxes would be going
up. It also might be the best way to build enough support for higher business
taxes, because of what Bartlett called the "dirty secret" of corporate
taxation: "Corporations don't mind paying higher taxes, as long as you find a
way to make their competitors pay more."

Long term, it seems apparent that without a radically smaller government, the
levels of taxation that Bush is calling for can't be sustained. According to an
analysis by Brookings Institution economist Bill Gale, simply making Bush's
2001 cuts permanent would reduce government revenue by roughly the amount of
the combined shortfall for Social Security and Medicare over the next few
decades.

Congress: Forcing an 'Unnatural Act'

Republicans and Democrats agree that the soaring deficit is a major concern.
But they cannot agree on the cause, let alone the solution. Republicans say
spending and an economic recession pushed the deficit over $500 billion.
Democrats argue that the Bush tax cuts account for a huge part of the problem.

As anyone who has struggled with the process will tell you, budgets are not
worth the paper they are written on if they cannot be enforced. But Congress's
enforcement tools expired in 2002, and so far, Republicans and Democrats cannot
agree on new ways to force Congress to spend less.

Between 1990 and 2002, spending and entitlement increases were subject to the
so-called "paygo," or pay-as-you-go, rule and caps on discretionary spending,
although during that time Congress routinely ignored both. Under the Budget Act
of 1990, Congress set statutory spending caps for appropriators. The act also
required any increases in entitlement spending or tax cuts to be paid for
("offset") through either cuts in entitlements or accompanying revenue
increases.

"The resolve of Congress was enforced by the budget process," said Robert
Reischauer, president of the Urban Institute and former director of CBO. "Paygo
and discretionary-spending caps enforced a set of decisions. If you tried to
retreat from that set of decisions, you had to pay for it." A senior Senate
Democratic aide added, "Everybody was treated fairly."

Many budgeteers credit the paygo rule and the spending caps with leading to a
balanced budget. However, slowly but surely, lawmakers began to evade the
spending caps through a variety of gimmicks, such as declaring routine spending
an "emergency." In addition, Republicans argued that tax cuts should not be
included in the paygo rule because, unlike entitlement spending, tax cuts
benefited the economy. In 2002, both rules expired with little notice.

These days, Congress routinely ignores the spending limits set in the annual
budget resolution, and it has enacted huge tax cuts and costly Medicare
prescription drug benefits. This year, as the deficit climbs above $500
billion, members on both sides of the aisle are calling for some mechanism for
Congress to control itself.

"There's a growing sentiment that we can't afford to [spend] more," said an
aide to the Blue Dog Coalition of moderate House Democrats. A Republican
agreed. "The paygo process did work," said Richard E. May, a legislative
consultant with Brownstein, Hyatt & Farber and a former GOP staff director of
the House Budget Committee. "It stopped a lot of spending, and on the opposite
side, it stopped a lot of tax cuts. Given the size of the deficit of today,
maybe it's time to look at paygo again."

The Bush budget promises that the president will send Congress a set of tools
to control the budget -- tools that Congress has so far been unwilling to
enact. "The president's budget-enforcement proposal is based on the premise
that any increase in spending should be offset by a reduction in other
spending," the administration's budget document states. Bush calls for re-
creating discretionary-spending caps that, if exceeded, would trigger cuts in
government programs. However, he does not require tax cuts to be paid for
through spending cuts elsewhere in the budget.

Conservatives applaud that approach. "Tax cuts pay for themselves through the
economic growth they generate," said Paul Beckner, president of Citizens for a
Sound Economy. Another conservative analyst, Dan Mitchell, a senior economist
at the Heritage Foundation, said that under the budget rules, it would take a
supermajority of members to pass bad policies that would increase spending.
"Tax cuts are good policy," he said.

But Democrats have already said they would not agree to a paygo rule that did
not cover tax cuts. The senior Senate Democratic aide said that, in the 1990s,
both appropriators and tax writers agreed to the paygo rules and spending caps
because they knew that each group would feel the same pain, but now, "those who
would feel constrained would not be willing to buy into the constraints."

Budgeteers say the outlook for Congress to enact any kind of statutory spending
restraints is uncertain. "I think there's a good chance for statutory spending
caps," May said. But when asked about paygo, he said, "I don't think Congress
is ready yet." Reischauer predicted that Congress will respond only after it
sees "tangible, adverse economic circumstances that are attributable to having
large deficits." He added that controlling spending is an "unnatural act" in an
election year.

But conservatives already are putting pressure on Bush to control spending,
urging him to veto any bloated spending bills. "Now is the time to go beyond
what was there in the past," said an aide to the conservative House Republican
Study Committee, adding that spending caps and paygo might not be strict enough
this time around. In the absence of any statutory requirements, he said,
conservatives will insist that Congress enforce the annual budget framework,
described in big-picture terms in the budget resolution. "We're going to focus
on making sure that we live within it," he said.

The projected rise in expenditures for Social Security, Medicare, and Medicaid
could drive total federal outlays, as a percentage of gross domestic product,
well above the levels they have held throughout much of the post-World War II
period.

Federal Outlays as a Percentage of GDP
Social
Security Medicare Medicaid
1940 0% 0% 0%
1941 0.1 0 0
1942 0.1 0 0
1943 0.1 0 0
1944 0.1 0 0
1945 0.1 0 0
1946 0.2 0 0
1947 0.2 0 0
1948 0.2 0 0
1949 0.2 0 0
1950 0.3 0 0
1951 0.5 0 0
1952 0.6 0 0
1953 0.7 0 0
1954 0.9 0 0
1955 1.1 0 0
1956 1.3 0 0
1957 1.5 0 0
1958 1.8 0 0
1959 2 0 0
1960 2.2 0 0
1961 2.3 0 0
1962 2.5 0 0
1963 2.6 0 0
1964 2.6 0 0
1965 2.5 0 0
1966 2.7 0 0.1
1967 2.7 0.3 0.1
1968 2.7 0.5 0.2
1969 2.9 0.6 0.2
1970 3 0.6 0.3
1971 3.3 0.6 0.3
1972 3.4 0.6 0.4
1973 3.8 0.6 0.4
1974 3.9 0.7 0.4
1975 4.1 0.8 0.4
1976 4.3 0.9 0.5
1977 4.3 1 0.5
1978 4.2 1 0.5
1979 4.2 1.1 0.5
1980 4.3 1.2 0.5
1981 4.6 1.3 0.5
1982 4.8 1.4 0.5
1983 5 1.5 0.6
1984 4.6 1.5 0.5
1985 4.6 1.6 0.5
1986 4.5 1.6 0.6
1987 4.5 1.6 0.6
1988 4.4 1.6 0.6
1989 4.3 1.6 0.6
1990 4.3 1.7 0.7
1991 4.5 1.8 0.9
1992 4.6 1.9 1.1
1993 4.6 2 1.2
1994 4.6 2.1 1.2
1995 4.6 2.2 1.2
1996 4.5 2.3 1.2
1997 4.5 2.3 1.2
1998 4.4 2.2 1.2
1999 4.3 2.1 1.2
2000 4.2 2 1.2
2001 4.3 2.2 1.3
2002 4.4 2.2 1.4
2003 4.4 2.3 1.5
2004 4.4 2.3 1.6
2005 4.3 2.3 1.7
2006 4.3 2.4 1.7
2007 4.2 2.5 1.8
2008 4.3 2.5 1.8
2009 4.3 3.1 1.8
2010 4.4 3.7 1.8
2011 4.5 3.7 2
2012 4.6 3.7 2.1
2013 4.7 3.7 2.3
2014 4.8 3.7 2.4
2015 4.9 3.7 2.6
2016 5 3.6 2.7
2017 5.1 3.6 2.9
2018 5.2 3.6 3
2019 5.3 3.6 3.2
2020 5.4 3.6 3.3
2021 5.5 3.7 3.4
2022 5.6 3.9 3.4
2023 5.7 4 3.5
2024 5.8 4.1 3.5
2025 5.9 4.3 3.6
2026 5.9 4.4 3.6
2027 6 4.5 3.7
2028 6.1 4.6 3.7
2029 6.2 4.8 3.8
2030 6.3 4.9 3.8
2031 6.3 5 3.8
2032 6.3 5.1 3.7
2033 6.3 5.2 3.7
2034 6.3 5.3 3.6
2035 6.3 5.5 3.6
2036 6.3 5.6 3.6
2037 6.3 5.7 3.5
2038 6.3 5.8 3.5
2039 6.3 5.9 3.4
2040 6.3 6 3.4
2041 6.3 6.1 3.5
2042 6.2 6.1 3.5
2043 6.2 6.2 3.6
2044 6.2 6.3 3.6
2045 6.2 6.4 3.7
2046 6.1 6.4 3.7
2047 6.1 6.5 3.8
2048 6.1 6.6 3.8
2049 6 6.6 3.9
2050 6 6.7 3.9
2051 6 6.8 3.9
2052 6 6.9 4
2053 6 7 4
2054 6 7.1 4.1
2055 6.1 7.2 4.1
2056 6.1 7.3 4.1
2057 6.1 7.4 4.2
2058 6.1 7.5 4.2
2059 6.1 7.6 4.3
2060 6.1 7.7 4.3
2061 6.1 7.8 4.4
2062 6.1 7.9 4.4
2063 6.1 8.1 4.5
2064 6.1 8.2 4.5
2065 6.2 8.3 4.6
2066 6.2 8.4 4.7
2067 6.2 8.5 4.7
2068 6.2 8.7 4.8
2069 6.2 8.8 4.8
2070 6.2 8.9 4.9
2071 6.2 9 5
2072 6.2 9.2 5.1
2073 6.2 9.3 5.1
2074 6.2 9.5 5.2
2075 6.2 9.6 5.3
Source: C. Eugene Steuerle and Adarn Carasso, The Urban
Institute, based on CBO data

Spending on entitlements and other mandatory programs, such as Medicare and
Social Security, has soared since 1962, while discretionary spending has
dropped as a percentage of gross domestic product.

Discretionary Mandatory Net Interest
Spending Spending on Debt
1962 12.7% 4.9% 1.2%
1963 12.5 4.7 1.3
1964 12.3 4.9 1.3
1965 11.3 4.6 1.2
1966 11.9 4.6 1.2
1967 13.1 5 1.3
1968 13.6 5.6 1.3
1969 12.4 5.6 1.3
1970 11.9 6 1.4
1971 11.3 6.7 1.4
1972 10.9 7.4 1.3
1973 9.9 7.5 1.3
1974 9.6 7.6 1.5
1975 10.1 9.7 1.5
1976 10.1 9.8 1.5
1977 10 9.2 1.5
1978 9.9 9.2 1.6
1979 9.6 8.8 1.7
1980 10.1 9.6 1.9
1981 10.1 9.9 2.2
1982 10.1 10.4 2.6
1983 10.3 10.6 2.6
1984 9.9 9.4 2.9
1985 10 9.7 3.1
1986 10 9.5 3.1
1987 9.5 9.1 3
1988 9.3 8.9 3
1989 9 9 3.1
1990 8.7 9.9 3.2
1991 9 10.1 3.3
1992 8.6 10.4 3.2
1993 8.2 10.2 3
1994 7.8 10.3 2.9
1995 7.4 10.1 3.2
1996 6.9 10.2 3.1
1997 6.7 9.9 3
1998 6.4 9.9 2.8
1999 6.3 9.8 2.5
2000 6.3 9.8 2.3
2001 6.5 10.1 2.1
2002 7.1 10.7 1.6
2003 7.6 10.9 1.4
Source: CBO, based on data from OMB

1. "These long-run budget projections show clearly that the
budget is on an unsustainable path, although the rise in the
deficit unfolds gradually."
2. "A government that borrows must eventually pay for what
it has borrowed."
3. "Under an extension of current-law formulas and the
policies in the budget, almost all of the budget would go to
these three programs alone [Social Security, Medicare, and
Medicaid by 2050]. That would severely reduce the
flexibility of the budget, and the government's ability to
respond to new challenges."
4. "Eventually, the rising trend in health care costs for
both government and the private sector will have to end, but
it is hard to know when and how that will happen.
'Eventually' could be a long way off. "
5. "Federal responsibilities extend well beyond the next
five or 10 years, and problems that may be small in that
timeframe can become much larger if allowed to grow."
6. "The main source of the long-run fiscal problem is
demographics."
Budget Quiz Answer: All are from Bush's 2003 budget
document.

Poll questions about budget deficits have varied over the years, but they offer
snapshots of public sentiments. Deficit and surplus figures are in constant
(2000) dollars.

December 1984
Deficit: $313 billion in fiscal 1985
54% The federal deficit is a "very serious problem" for the
country.
October 1990
Deficit: $327 billion
67% It is "very important" to reduce the federal budget
deficit.
July 1991
Deficit: $341 billion
23% The federal budget deficit is "the most important
issue" facing the United States. (The only issue to outrank
the deficit was education.)
August 1993
Deficit: $228 billion
67% The issue of the federal deficit is "very important" to
me personally.
February 1994
Deficit: $180 billion
24% The federal budget deficit is "the most important issue"
facing the country. (The only issue to outrank the deficit
was unemployment.)
April 1997
Surplus: $72 billion in fiscal 1998*
58% The federal budget deficit is a "high priority" for the
country.(*Public knowledge lagged behind improving budget
picture.)
January 1998
Surplus: $129 billion in fiscal 1999
40% The federal budget deficit is a "very serious" problem.
34% The federal budget deficit is "very important" in
determining how I will vote.
June 2000
Surplus: $125 billion
47% It is "very likely" or "somewhat likely" likely that if
George W. Bush is elected president, the budget would get
out of balance, with a return to deficit spending.
August 2001
Deficit: $152 billion in fiscal 2002
54% It is more likely next year that the government will
have a budget deficit.
January 2002
Deficit: $353 billion
51% The government should run a deficit if necessary when
the country is in a recession and is at war.
64% It is "extremely important" or "very important" that the
president and Congress deal with the federal budget deficit
in the next year.
January 2003
Deficit: $481 billion est.in fiscal 2004
68% It is "extremely important" or "very important" that the
president and Congress deal with the federal budget deficit
in the next year.
67% The fact that the United States will have federal budget
deficits for the foreseeable future is a "crisis" or a
"major problem."
May 2003
51% When thinking about the trade-offs the government must
make when creating a federal budget, I would rather see the
government give a higher priority to reducing the federal
budget deficit than cutting federal income taxes. (44
percent said cutting federal income taxes was preferable.)
July 2003
77% The federal budget deficit is a "crisis" or a "major
problem" for the country.
November 2003-January 2004
3% The federal budget deficit is the most important problem
facing the nation.