Bush Presides Over Biggest Growth in U.S. Spending Since 1990

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Bush Presides Over Biggest Growth in U.S. Spending Since 1990
Dec. 8 (Bloomberg) -- President George W. Bush is presiding over the biggest growth in U.S. government spending since 1990, as a Republican-led Congress provides money for programs ranging from the fight against terrorism to a dried plant exhibit at the New York Botanical Garden.

Federal spending rose 7.3 percent to $2.2 trillion in fiscal 2003 and 7.9 percent the year before, the most since George H. W. Bush was in the White House. Congress will vote this week on a $328 billion bill to fund such projects as an $18 billion loan guarantee for an Alaska gas terminal that may benefit ConocoPhillips Co. and Exxon Mobil Corp.

The spending threatens Bush's pledge to cut the federal budget deficit in half by 2008, said Robert Bixby, policy director at the Concord Coalition, which advocates a balanced budget. The deficit hit a record $374 billion in the year ended Sept. 30 and is projected by the White House to widen to $475 billion this year. Government spending and Bush's tax cuts also helped the U.S. economy grow 8.2 percent in the third quarter.

``The big boom you're having right now might not be sustainable if the deficit continues to be large,'' said Steven Hess, an analyst with Moody's Investors Service.

The U.S. government's credit rating may be in jeopardy in the next decade unless lawmakers limit spending and reduce the deficit, Hess said. Merrill Lynch & Co. and HSBC Holdings Plc economists say White House projections are too low. They forecast the fiscal 2004 shortfall may be at least $600 billion.

Reagan's Example

After the 2004 election, Bush may follow the pattern established by former President Ronald Reagan, who in his second term held the lid on defense spending and allowed tax revenue increases, said Bill Frenzel, a Brookings Institution scholar who led Republicans on the House Budget Committee during a 20-year congressional tenure.

``It may be that George Bush after re-election will have the same epiphany that Reagan had,'' Frenzel said.

Reagan won a second term in 1984 with 58.8 percent of the vote after government spending increased by more than 8 percent a year in his first three years in office. Richard Nixon also won a second term after spending rose by higher percentages each year of his first term, reaching 9.8 percent in 1972 when he won with 60.3 percent of the vote.

By contrast, Bush's father slowed the growth in spending from 9.6 percent in 1990 to 4.3 percent in the 1992 election year and raised taxes after inheriting debts from Reagan's years in office, breaking his promise for ``no new taxes,'' and losing a re-election bid. Bush won't make the same mistake, said Stan Collender, an analyst at Fleishman-Hillard in Washington.

``One of the reasons the president is speaking loudly and carrying a small stick on spending is because it will stimulate the economy,'' Collender said. ``If it has a long-term deficit impact, what does he care? He only has to get through the next election.''

Election Year

Congress and Bush lack the resolve for belt-tightening next year with a third of the Senate, the entire House of Representatives and the president running for re-election, said Bill Sullivan, chief economist at Morgan Stanley in New York.

``We're headed into an election year, and there's no evidence that Bush or anyone on the Democratic side of the ledger will advocate a sharp cutback in spending,'' Sullivan said.

Democratic presidential candidates have criticized Bush's fiscal record and tax cuts. Howard Dean, the former Vermont governor, Senator John Kerry and Representative Richard Gephardt outlined plans to eliminate deficits, including restoring ``pay as you go'' rules that lapsed under Bush. Those requirements forced Congress to offset new spending with tax increases and cuts in other programs.

Congress approved new spending in November to cover the next 10 years, including $395 billion for Medicare prescription drug coverage and $22 billion for veterans' benefits, plus $340 million more a year to prevent wildfires.

Military Money

The Army has been granted $1.5 billion for a Future Combat System managed jointly by Boeing Co. and Science Applications International Corp. as a down payment on a $92 billion family of armored vehicles, robots and aerial drones that will be the No. 2 Pentagon program.

Bush also is pushing for an energy bill, intended to reduce U.S. dependence on the resources of other nations, that stalled in the Senate last month. The funding for that bill has grown in Congress to $31 billion, almost quadruple the amount Bush requested.

``The deficit is manageable, but no one in Congress or the White House is doing anything to manage it,'' said Bixby, of the Concord Coalition.

Senator John McCain, an Arizona Republican who heads the Commerce Committee, said the Medicare bill will cause the 38-year- old program ``to go broke,'' and the energy bill is ``just one pork-barrel project larded on to another.''

Hometown Projects

Lawmakers secured about $24 billion in taxpayer money for hometown projects in the fiscal 2004 budget, according to Citizens Against Government Waste, a Washington group. That's a record, equal to the combined budgets of the Justice Department, Small Business Administration and National Science Foundation.

Bush has criticized lawmakers for funding hometown projects, such as $400,000 for the New York Botanical Garden's virtual herbarium, a collection of dried plants. Still, Bush has never vetoed a spending bill. The rising cost of such projects shows Congress lacks the will to cut spending, said David Williams, vice president of policy at Citizens Against Government Waste.

The Bush administration says deficits aren't high by historical standards. The fiscal 2003 deficit was the equivalent of 3.4 percent of gross domestic product. The highest the deficit has reached as a share of the economy was 6 percent in 1983.

Bush's deficit-curbing plan is to restrain spending other than defense and homeland security and use income tax cuts with the hope of helping businesses and boosting consumer spending that will in turn increase government revenue.

Bush's Stimulus Package

``The economic stimulus package that we passed out of the United States Congress is working,'' Bush said last week at a Pittsburgh fund-raiser, citing last quarter's growth figures.

Lingering deficits will mean higher borrowing costs for companies, consumers and the government, said Fleishman-Hillard's Collender, a former legislative aide for congressional Democrats.

Glenn Hubbard, a Columbia University professor and former Treasury Department official who helped shape Bush's tax-cutting policies, disputes the idea that deficits push up interest rates that can be a brake on the economy.

Bush will force a ``meaningful discussion'' about spending, probably after the 2004 election, and should focus on the Social Security retirement and Medicare insurance programs for seniors, which are projected to balloon in cost, Hubbard said.

`Unforgiving' Math

``The math is really unforgiving: you either address entitlements or raise taxes,'' he said.

Mandatory spending on Social Security, welfare and other continuing programs hit an all-time high in 2003 at 11 percent of gross domestic product, according to the Heritage Foundation. Much of the increase can be attributed to more people claiming social services, including unemployment benefits as 2.7 million manufacturing jobs have been shed during Bush's tenure.

The Heritage Foundation, whose support of limited government has made it a host for Republican officials, has done studies critical of Bush's appropriations. On a per-household basis, government spending rose to $20,300 per household, the first time since World War II it has topped $20,000 per household in current dollars, Heritage said.

``Congress will keep spending until voters make clear in an election they don't want runaway government spending,'' said Brian Riedl, a budget analyst at Heritage. ``Republicans think that the road to re-election is through government spending. In 2002, they identified farmers as major swing voters and passed the biggest farm bill ever. In 2004, the senior vote is very important, and they passed the Medicare prescription drug bill.''

Defense of Spending

The Center on Budget Policy and Priorities, whose studies are usually cited by Democrats, says Bush kept his promise to hold spending that depends on annual appropriations from Congress to a 4 percent increase this year. Spending rose 3 percent, or about 1 percent in inflation-adjusted dollars, the center said. Over three years, discretionary spending rose an average of 8.7 percent under Bush compared with 4.2 percent a year in the last three years of the Clinton administration.

Most of discretionary spending increases happened early in Bush's presidency, as the country went to war in Afghanistan and Iraq and Congress spent more on domestic programs amid concern from the administration that paying down the national debt with Clinton-era surpluses too rapidly would disrupt capital markets, said Richard Kogan, an economist at the center.

Kogan argues that any future discretionary spending rollbacks would be offset by revenue lost through Bush's tax cuts, which his center opposed.

``We have an administration that favors all programs but doesn't finance them,'' he said.