the Bush Administration seems to have gone out of its way to confirm Frankel’s point

TO BE NOTED: From Mercatus via Paul Kedrosky:

"Spending Under President George W. Bush

Veronique de Rugy

March 16, 2009

Tax and Other Fiscal Policy, Government Accountability Project, Working Papers, Mercatus, Financial Markets Working Group

Working Papers

The numbers are in. With the release of the first estimate of the FY 2009 budget, we can now summarize and assess President Bush’s fiscal legacy.¹

Section 1. Overall Federal Numbers under President Bush

During his eight years in office, President Bush oversaw a large increase in government spending, as seen in Table 1:

In fact, as seen in Table 2, President Bush increased government spending more than any of the six presidents preceding him, including LBJ.

In his last term in office, President Bush increased discretionary outlays by an estimated 48.6 percent. The largest increase took place in his last year and included, among other things, the $700 billion financial industry bailout bill (TARP) and the federal takeover of Government-Sponsored Enterprises Freddie Mac and Fannie Mae.

Figure 1 illustrates that during his eight years in office, President Bush spent almost twice as much as his predecessor, President Clinton.

Adjusted for inflation, in eight years, President Clinton increased the federal budget by 11 percent. In eight years, President Bush increased it by a whopping 104 percent.

Figure 2 illustrates how—with one noticeable exception in 2007—federal spending grew dramatically faster under President Bush than under President Clinton.

Figure 3 shows the cumulative real discretionary spending increases for recent presidents who have served two terms (Reagan, Clinton, and Bush), setting the first year in office at a base of 100. With this identical starting point, we can see how much each president added to the budget during his term.

President Bush outspent both Reagan and Clinton. President Reagan boosted defense outlays by 41 percent during his terms, but he also cut real nondefense outlays by 10 percent. Overall, total discretionary spending increased by 15.8 percent during Reagan’s terms. During Clinton’s first term, real discretionary spending actually decreased by 8 percent. During his second term, with the Republicans in control of Congress, it increased by 8.8 percent. Over Clinton’s eight years then, real discretionary spending increased by 0.1 percent. During his two terms in office, however, President Bush increased real discretionary spending by 44 percent.

Figure 4 demonstrates how in FY2009—President Bush’s last budget—the federal government will spend $32,942.90 per household, up from $17,216.68 in FY2001. It will tax $18,286.74 per household and will run a budget deficit of $14,656.16 per household.

Section 2: Discretionary vs. Entitlement Spending

One reason offered for these large budget increases is that entitlement programs are growing rapidly. Although Social Security and Medicare spending growth outpaced most other programs in the mid-1990s, spending growth in discretionary programs has accelerated in the last 15 years, especially during Bush’s two terms. Between FY2002 and FY2009, discretionary spending rose 96 percent.

Figure 5 shows that while discretionary spending never outgrew mandatory spending, it kept pace with it (with the exception of FY2009 due to the financial bailout and the federal takeover of Freddie and Fannie).

Figure 6 shows that annual growth of discretionary outlays had accelerated during President Bush’s terms. In fact, during most of the Clinton years, discretionary spending barely grew.

Rather than increasing the discretionary budget, Congress should have cut it to make way for rapid future growth in entitlement programs. As the trend in figure 7 indicates, when the baby-boom generation begins retiring later in the next decade, Social Security and Medicare costs will explode. If Congress does not reform entitlement programs, longer life spans and rising health-care costs will exacerbate the already huge burden placed on future generations.

To make matter worse, President Bush’s enactment of the Medicare prescription drug bill will make the coming fiscal crunch from entitlements much worse. Even though the budget was already deep into deficit and entitlements have huge long-term financing shortfalls, Congress and President Bush enacted a new multi-billion entitlement program in December 2003—the biggest expansion in Medicare since its inception.

Section 3. Discretionary Defense versus Nondefense Outlays

Some argue that federal spending during the Bush years was so high because security needs drove up the budget. It is true that defense spending increased dramatically since the late-1990s, particularly since 9/11 and the beginning of the wars in Iraq and Afghanistan. However, nondefense spending increased too. Figure 8 shows discretionary nondefense spending versus defense spending in the last eight years. It shows that no tradeoffs were made during the Bush years between defense and nondefense outlays.

Some also argue that much of the increase in nondefense spending stemmed from increases in homeland security spending. Whether this is true, the overall rapid rise of discretionary spending indicates that, here too, the administration and Congress made no trade-offs in the budget. If the administration and Congress wanted more security spending and wanted to be fiscally responsible, they should have found savings elsewhere in the budget.

In summary, only a part of recent spending increases are related to 9/11. Much of the increase stems from new domestic spending initiatives on the parts of the administration and Congress, such as expansions in the Department of Education.

Section 4: Pork Projects

Two other good indicators of a lack of fiscal responsibility are the costs of and number of earmarks (i.e. pork) that make their ways through the appropriations process.

As seen in figure 9, between 1994 and 2005, both the cost of and the number of pork projects increased dramatically, reaching an all-time numerical high of 13,997 pork items in 2005. The year 2006 saw a slight reduction in the number of earmarks, but their costs went up to $29 billion in that single year.

The year 2006 was also the last year that Republicans were in full control of both Congress and the White House. Since then, Congress made some effort to reduce the use of earmarks with more or less success. After a serious reduction in the number and the costs of earmarks in FY2007, lawmakers slipped over 8,000 earmarks into an Omnibus bill in February of this year. These earmarks come on top of the 2,321 earmarks added to the three appropriations bills completed and signed by President Bush in September 2008. The pork project total in 2009 will reach 10,891 projects and will cost taxpayers $14.8 billion.

Section 5: Federal Subsidies

President Bush added thousands of new federal subsidy programs during his eight years in office. In 2008, there were 1,816 subsidy programs in the federal budget that spread hundreds of billions of dollars annually to special interest groups such as state governments, businesses, nonprofit groups, and individuals. The number of subsidy programs has grown by 30 percent since 2000 and by 54 percent since 1990.

Conclusion

Republicans often claim to be the party of smaller government. Many Republicans would express support for Ronald Reagan’s observation: “Growth, prosperity and ultimately human fulfillment, are created from the bottom up, not the government down.”² Unfortunately, once Republicans are elected to political office, they tend to fall into the Washington trap of assuming that more federal spending will solve the nation’s problems. Certainly, President Bush appears to have fallen into this trap. So did the Republicans in Congress.

Harvard economist Jeffrey Frankel argues that we should not be surprised by the discrepancy between the rhetoric and the actual policies of Republicans. Frankel even argues that “the Republicans have become the party of fiscal irresponsibility, trade restriction, big government, and bad microeconomics.”³ Frankel is incorrect about the microeconomics—Republicans generally pursue sounder tax policies than Democrats, for example—but when it comes to big government spending, the Bush Administration seems to have gone out of its way to confirm Frankel’s point.

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¹ Office of Management and Budget (2009), A New Era of Responsibility: Renewing America’s Promise, www.budget.gov
² Ronald Reagan, September 1981, www.reaganesque.com.
³ Jeffrey Frankel, “Trading Places: Republicans’ Economic Policy Is Now Closer to That Associated with the Democrats, and vice versa, says Jeffrey,” Financial Times, September 13, 2002."