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Press Release

    The State of the Union

    01/29/2002

    On Tuesday, President Bush delivered his first State of the Union address to the American public. Not surprisingly, the war on terrorism was a major focus, as was homeland security. Bush also touched upon a few domestic policy initiatives and the unease with corporate America generated by the collapse of Enron. In the next few weeks the president will deliver his budget to Congress, which will provide a more detailed description of some of the plans outlined in his State of the Union. The budget will make one thing clear: Washington has some tough choices ahead as early projections show deficits for the next two years. President Bush has outlined an ambitious program to provide for the security of the American people. With deficits looming, the president and Congress must revisit many costly programs and reorder budget priorities with an eye toward prudence and responsibility.

    Already, the Congressional Budget Office’s new 10-year forecast lists deficits for the next two years. In 2002, the government will spend $21 billion beyond its budget, and in 2003 spending will exceed revenues by $14 billion. While many may attribute these deficits to the president’s tax cuts, excessive spending is the more serious culprit. In fact, the bulk of the president’s tax cuts have yet to become law; the Congressional Budget Office finds the economic downturn and discretionary spending by Congress to be more significant factors.

    It is important to remember that recent surpluses were not generated by a bloated government pruning its budget. In fact, government spending last year increased by an estimated $67 billion over the past year. Deficits had disappeared because, thanks to a booming economy and a progressive tax code, as Americans became wealthier, the government grew even wealthier. After adjusting for inflation, federal revenues jumped from $1.12 trillion in 1991 to an estimated $1.93 trillion in 2001. During that time, federal spending increased from $1.48 trillion to $1.68 trillion. As revenues increased, it was virtually impossible for Congress to kick the spending habit.

    Indeed, the emerging surpluses were a temptation too great for Congress. Despite legislation to limit federal spending, federal outlays continued to rise, particularly when there were extra funds to be spent due to the surplus. In 1990, as the nation wrestled with a deficit that was $221 billion and rising, the former President Bush signed into law the Budget Enforcement Act of 1990. Briefly, the act imposed caps on discretionary spending and created a “pay-as-you-go” requirement, which required new spending to be offset by cuts in existing spending. The Omnibus Reconciliation Act of 1993 extended the caps to 1998, and the Budget Enforcement Act of 1997 extended the caps until 2002.

    In the early years, the caps provided some source of fiscal discipline. According to the Concord Coalition, from 1990 to 1998, discretionary spending rose from $501 billion to $555, which, when adjusted for inflation, was a decline of about 10 percent. However, with the arrival of the surplus, fiscal discipline was shattered. Spending rose dramatically above prescribed levels and Congress resorted to accounting gimmicks and “emergency” supplemental bills to cast aside any semblance of a spending cap. In fact, as the Concord Coalition notes, the emergency supplemental bill reached a point where it was larger than nine of the thirteen normal appropriation bills.

    Unfortunately, Congress shows no signs of curbing its appetite for spending. Entitlement programs such as Social Security and Medicare will continue to place a greater burden on federal spending, particularly as the Baby Boom generation retires. Beyond these programs that include built-in spending hikes, discretionary spending is predicted to increase as well. According to the Congressional Budget Office, discretionary spending is expected to increase by $115 billion over the next two years, and the majority of this is non-defense spending.

    Rather than attacking tax cuts that provide businesses and consumers more resources to invest and save, those worried about the renewed deficits and a sagging economy should focus on curbing the growth of government in Washington. The president can lead the way with an aggressive domestic policy agenda to supplement his foreign policy objectives. A top down examination of agencies and their programs to eliminate waste and redundancy is an important first step. A number of laws have been passed to address excessive growth in government—the Paperwork Reduction Act, the Regulatory Accountability Act, and the Government Results and Performance Act, to name a few—and President Bush has an opportunity to utilize these laws to streamline government.

    At the same time, Congress must check its impulse to implement expensive programs that benefit special interests at the expense of taxpayers in general. These programs redistribute tax dollars to those groups most effective in Washington. Consider the farm bill, for example. Despite tight economic conditions, Congress is pressing forward with a $73 billion farm bill, with most of the benefits accruing to the wealthiest farmers in the country. It is difficult to square Sen. Daschle’s concerns over tax cuts with his sponsorship of such corporate welfare. Making the president’s tax cut permanent would keep tax dollars in the consumer’s pocket instead of letting Congress recycle those dollars to their favorite industry or interest groups.

    President Bush has laid out an important agenda. Domestic economic policy is a critical component of that plan, and the strength of the economy is a critical component of our effectiveness on the world stage. Restraining the growth of government will be a substantial task in the coming years. As the president moves to implement the vision outlined in the State of the Union, he should keep a watchful eye on federal spending and seek to promote a vibrant market economy. This includes displaying a real concern for fiscal responsibility and providing consumers and investors with real tax reform, which can begin with making the president’s tax cuts permanent. Just as the government has shined a light on the activities of corporate America, so, too, must the government assure citizens that it will behave in a fiscally prudent manner.