The Bush Budget: Reagan Redux

OMB Watch will continue to analyze the President's FY 2003 Budget. Please see the OMB Watch website over the next week for further analyses of homeland security spending, cuts to human needs spending, and spending increases on future tax cuts. The President's Budget is now online. The Washington Post has provided an agency-by-agency overview of the President's proposed spending increases and cuts.

Okay... we've been here before. The President proposes massive increases in military spending, slashes domestic spending, and cuts taxes. The result: a massive build-up in deficit spending, a large portion of government spending going towards interest payments on a ballooning debt, and gaps in the social safety net of the country. While that is a picture from the Reagan years, it is also a snapshot that can be gleaned from the Bush budget sent to Congress today.

The Bush budget, the first completely developed by his administration, proposes yet more tax cuts, coupled with increased spending for military and homeland security – and all of it paid for by huge cuts in domestic programs (cuts that are unlikely to be supported by Congress) and increased deficits. The $2.13 trillion FY 2003 budget proposes a 3.7% increase in spending over this year. Defense spending gets a whopping $48 billion increase, an increase that is larger than the military budget of any other country, according to an analysis by the Center for Arms Control and Non-Proliferation. Homeland security would double to $37.7 billion, with $11 billion over two years going to address biological terrorism. The general feeling is that Congress will agree to the military and homeland security proposals.

But lots of other domestic programs strongly supported by members of Congress would be eliminated and significantly cut according to the Bush budget. For example, Bush proposes the elimination of hundreds of "earmarked" projects that members of Congress insert each year for their home districts. These are not likely to be eliminated in any given year, but especially not in an election year such as this one. Bush also proposes large cuts to highway and environmental programs. For example, he would take a $9 billion slice out of highway spending and reduce spending on water projects undertaken by the Army Corps of Engineers. Few of these cuts in domestic spending will be popular.

Last summer the President got away with a massive $1.35 trillion tax cut targeted to the wealthy mostly because of what appeared to be a large surplus. Most of the tax cuts are phased in over a 10-year period and have not yet been implemented. Because of budget rules, last summer's tax cuts "sunset," or expire, at the end of 2010. With the need for increased spending to respond to terrorism and the economic downturn, it would make sense to suspend the tax cuts that have not been phased in. Yet, Bush proposes to extend these tax cuts by two more years, going until 2012, at a cost of $344 billion. He also proposes an additional $247 billion in tax cuts that include:

  • Tax relief for corporations;
  • Even greater breaks for wealthy individuals than last summer's tax cut; and
  • A tax credit that will pay as much as $2,500 a year in private school tuition for children whose public schools are operating below state standards.

Rosy Scenario Pays Another Visit

During the Reagan years, OMB used economic assumptions and proposals that were highly unlikely in order to present an optimistic budget picture. Bush plays the same trick. For example, in order to demonstrate the need for an economic stimulus that places a heavy emphasis on tax cuts, the budget assumes very low economic growth this year. But suddenly, the economy will explode with the annual rate of growth of the Gross Domestic Product (GDP) jumping from 0.7% in 2002 to 3.8% in 2003. (By way of comparison, the "Blue Chip Consensus" estimates that the rate of growth of GDP will be 1.0% in 2002 and 3.4% in 2003.)

Similarly, the President assumes there will be $1.2 billion in revenue generated from drilling in the Arctic National Wildlife Refuge (ANWR), a controversial proposal that would need to be passed by Congress. There are also spending assumptions that are unlikely. For example, the President has said he supports prescription drugs for Medicare recipients. But he estimates the cost at only $190 billion over the next 10 years, whereas most experts put the cost much higher.

The result is the same as the Reagan budgets that predicted, year after year, smaller deficits – even surpluses -- when in reality the deficit bulged. Like Reagan, Bush's rosy picture will never happen.

Bush Deficits -- FY 2002 - 2004
(in Billions of Dollars)

Fiscal Year 2002 2003 2004
Total Deficit -$106 -$80 -$14
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