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Press Release

Responsible Spending is the Missing Ingredient


While Congress was struggling to pass an $820 billion spending bill, President Bush was preparing to deliver the State of Union. Bush outlined a plan for bolstering the economy that builds on earlier tax cuts while addressing other weaknesses in the economy. Congress, meanwhile, just passed a spending bill that boosts discretionary spending by 9 percent, according to Brian Reidl of the Heritage Foundation. At some point, the propensity of Washington to spend must be reconciled with talk of economic reform. If the president is serious about economic growth, government spending must be contained.

With respect to economic policy, Bush outlined a number of steps to strengthen the incentives to save and invest, beginning with a call to make the tax cuts permanent. This would lock in the benefits of the tax cuts while reducing the uncertainties generated by the possibility of the gains dissipating as the tax cuts sunset. Everything from the death tax to individual income tax rates to small business expensing rules are poised to expire without congressional action. President Bush was right to put Congress on notice that if they fail to act, millions of Americans will be facing tax increases.

The president was not near as stern when addressing federal spending. In fact, the president announced that the budget he will submit to Congress proposes to limit discretionary spending growth to only 4 percent, forcing Congress to prioritize its spending needs and make tough choices. Unfortunately, that is still an increase in spending, on top of increases of 12 percent last year and 13 percent the year before. Rather than make tough choices, this budget institutionalizes the spending binge of the past five years, when federal outlays increased by more than 25 percent. Citing a study by the Club for Growth, the Wall Street Journal notes that the average annual spending increase under Bush far exceeds that of President Clinton. On average, real discretionary spending increases under Bush have averaged 8.2 percent compared to 2.5 percent under President Clinton.

The president touched on a number of other important proposals as well. He mentioned the need to reform our legal system to eliminate lawsuit abuse that costs the American economy $180 billion annually and is making the nation less competitive in the global marketplace. Bush also briefly noted the need for regulatory reform, an issue that has not garnered a significant amount of attention within the administration. Nonetheless, estimates suggest that the regulatory burden imposes as much as $800 billion a year on the U.S. economy. In a competitive global economy, the nation cannot afford to impose unnecessary costs on American producers. It is noteworthy that the administration recognizes the potential economic drag of lawsuit abuse and excessive regulation. Should Bush have a second term, these issues are ripe for reform and cannot be overlooked.

President Bush also called for important reforms to big ticket items such as social security and health care. For Social Security, the president called for the introduction of personal retirement accounts, which would allow Americans to have a real ownership stake in their retirement future. This would be an important step toward reforming a system that is rapidly heading toward bankruptcy if no action is taken. In addition, the president requested additional measures to reform the health care market, allowing individuals greater control while increasing market incentives to control health care costs. Both initiatives are critical and should receive high priority in the next administration.

Overall, President Bush laid out a broad plan to continue the nation’s economic recovery. Unfortunately, the plan lacks a key element—fiscal restraint. There was little mention of runaway spending in Congress, and the president could not resist his own spending programs in the State of the Union, with calls for renewed spending in areas such as education, drug testing, and job training for prisoners. On the heels of the prescription drug benefit and an expansive mission to Mars, it appears that Washington remains intent on spending more money. Even Democrats decry the deficit, although they see it as a need to repeal tax cuts rather than a cue to cut spending. President Bush continues to defend the tax cuts, but much more needs to be done to rein in wayward spending. If not, government will continue to grow, and taxpayers will get the bill in the not too distant future.