The Federal Budget Debate: Infernal Symbiosis

The cacophony of the coming war threatens to drown out any reflective debate on President Bush’s budget proposal for Fiscal Year 2004. The distraction may extend to the point where Congress does not take the time to consider the President’s proposals, much less pass any. Many tend to focus on the austerity implied by the budget, but more subtle dynamics are afoot. The austerity is not as severe as it is cracked up to be, but there are radical, far-reaching structural reforms put on the table.

Cuts can be found, of course. This time around, the victims include civilian investment in public “physical capital” (infrastructure), transportation, community and regional development, and training, among others.

But it would be misleading to focus on the numbers, in and of themselves, because there is a more fundamental pattern to the way budgeting has transpired during Bush’s term in office.

In a nutshell, the game works like this: the President proposes a very lean budget for non-defense spending. The Republican-dominated Congress spends a fair amount more than the President proposes. Then Bush signs the legislation.

The accompanying chart illustrates this dynamic. It shows the actual and proposed levels of non-defense discretionary spending, adjusted for inflation. The first dark blue bar in each group shows the “baseline” level for the fiscal year in question. The baseline is simply the previous year’s outlays adjusted for inflation. The orange bars are the levels proposed by President Bush in February for the following fiscal year (which begins in October). You can see that the real increases here tend to be very small. The yellow bars show what was actually passed by Congress and approved by the President. You can see bigger increases here. The light blue bars are spending for the preceding year (thus the light blue bar for 2002, for instance, is the same height as the yellow for 2001). Here the contrast, in terms of the progression of what Congress has actually done, is the most pronounced.

Why does this make everyone happy? The President gets to pose as a fiscal tightwad in his budget proposal. The Democrats get to criticize him for it, something that also pleases the President because it reassures his conservative base. Both Democrats and Republicans on the appropriations committees, who have a benign attitude toward spending increases under their jurisdiction, get more money to play with. At the end of the day, the President takes credit for spending increases, and the Democrats complain about the deficit.

The consequence of this shadow play is that the preordained commitment to austerity on the domestic side of the budget precludes the consideration of important spending initiatives that could respond to the nation’s needs. For instance, state and local governments have been hit hard by the slowdown and are forced to cut services. The Federal government could alleviate this problem with general fiscal assistance. Another example: instead of talking about killing Amtrak, the Congress might talk about how to augment the nation’s rail system for the sake of economic development and increased transportation options. The increases take on a higher pork quotient. Meanwhile, military spending since 2000 has grown by roughly a hundred billion dollars in annual terms.

The overall spending changes in question are not large, when compared to the Gross Domestic Product. The change in the federal budget’s non-defense discretionary share of GDP from 2000 to 2003 is less than a percentage point (from 3.3 to 3.9%). But this change does exceed the common conception of the President’s tolerance for growth in government. Over the course of President Clinton’s term in office, eight years rather than three, non-defense discretionary spending decreased from 3.7 to 3.3% of GDP.

In summary, we have too much political contentment with too little progress in responding to domestic priorities. There’s your infernal symbiosis.

Less noticed in the controversy over tax cuts and austerity are structural changes in Medicaid and Medicare. Here again, the big news about a prescription drug benefit can be misleading. The Bush administration is pursuing long-term strategies to destroy Medicaid and Medicare, while enriching private sector health care providers and burdening state and local governments, as well as reducing insurance options available to the American people.

The thrust of the Medicaid proposal is to move the program toward a block grant on the grounds of providing more “flexibility” to state governments. Currently state spending is matched for services to which beneficiaries are legally entitled. A block grant is just a fixed pot of money. States can move this money to new areas, but of course this means something else–someone else–is deprived of care. A block grant subject to annual funding decisions is more easily trimmed over time.

In the case of Medicare, privatization is the poison pill of choice. To reduce Medicare costs, the administration would like to herd people into HMOs, where decisions on their care would be subject to profitability criteria. HMOs would have a magnified incentive to seek wealthy, healthy persons as customers and avoid the poor and unhealthy. It is quite possible that by acquiring a sufficiently healthy clientele, an HMO could make huge profits if it is compensated according to some average per-patient Medicare amount. In effect the HMOs would get the good risks and the government would be left with the bad. This is a formula for enriching the HMO industry, not providing health care to the nation.

How the coming war will affect the legislative process remains to be seen. Perhaps unpopular measures will be pushed through, while the public’s attention is fixed on the conduct of the war and terrorist threats. Perhaps initiative of any sort will just stall. Perhaps when the Bush administration owns up to the cost of the war in Iraq, that will encourage Congress to reconsider the tax cuts passed in 2001. The Pentagon is now owning up to projected war costs of 60 to 95 billion dollars, in addition to the costs of a post-conflict military occupation. None of these costs are included in the current deficit projections. In either case another year will have been wasted, and the nation’s problems will continue to be neglected.