February 18, 2004

The spending priorities outlined in President Bush's budget certainly reflect his claim of being a "wartime" president.  Since 2001,  homeland security is the fastest growing component of discretionary spending .  Defense receives 85 percent of the budget's increase in discretionary spending for the new fiscal year. 

The large discretionary gains in international assistance programs, state department activities, and veterans affairs also could be related to the "war on terrorism".  However, there is a little butter with the guns.  Education, housing and urban development, and NASA also have significant dollar gains in the discretionary portion of the budget. 

Of course, looking at dollars allocated is not sufficient to determine if the people's money is being spent wisely.  Will the reduced growth in military pay maintain the quality of recruits needed in our volunteer force?  Are we addressing the personnel problem developing in our reserves?  Are we spending money on intercepting ballistic missiles and not on improving the monitoring of international nuclear trade? 

A quick examination of the dollar allocations in the budget cannot answer those critical questions.  Also, some spending responds to temporary conditions.  For example, the decline in the budget for the Department of Agriculture reflects more the improvement in the farm economy than a reduction in administration priorities. 

However, an examination of the dollar flows over the four years of this administration's budget presentations reveals some shifts in governmental direction.  For example, the largest percentage decline in discretionary support for any agency during the four year period is the small business administration.  Perhaps there are loan programs that were terminated because they could not be justified.  Nevertheless, such a large decline (almost 25 percent in four years) suggests that small business development is not a Bush concern. 

Other big budget declines are in the Corps of Engineers, the Department of Transportation, the Environmental Protection Agency, and the Department of Labor.  Given a recession and the transitional problems faced by outsourced jobs, this latter cut may be the unkindest of all. 

I will grant that the administration believes providing tax incentives is preferred to spending programs.  Thus, part of the decline in small business support could be explained by faster expensing of equipment for small businesses.  (Of course, to take advantage of that, businesses must have taxable income.)

While there are some tax deduction initiatives for environmental programs, the one that allows businesses, including the self employed, to expense large SUVs can hardly be called an environmental tax initiative.  In fact, there are $1.2 billion of revenues projected for 2006 from leases on the Arctic Wildlife Refuge.  Clearly, the environment does not have the same priority it once did.

Although the discretionary budget more clearly shows administration spending priorities, it has become a small percentage of the total budget.  By 2009, the nondefense discretionary budget will be less than 17 percent of government outlays according to administration projections. 

While social security is projected to grow by 29 percent in six years, the largest growing program is interest on the debt.  Both an explosion of borrowing and an increase in interest rates will virtually double those interest payments. 

The virtuous cycle of falling debt and interest rates in the last administration has been replaced by a vicious cycle of interest payments that will grow by $146 billion in six years.  As mentioned last week, economic growth will not be sufficient to control this need for new debt. 

The new prescription program and additional expenses for medical services outside of the veterans administration also are budget killers.  Medicare's growth is nearly 70 percent while Medicaid programs will be growing 52 percent.  (As the budget does not show explicitly its medical inflation assumptions, I cannot determine how reasonable these already very large gains are.) 

When state medical programs and the medical benefits programs of all government workers are considered, more than half of all medical services will be purchased by some governmental entity by the end of this decade. 

This administration clearly believes it must spend on war, provide medical relief to the elderly, and use tax initiatives to change economic behavior even if those tax cuts require rapid increases in interest expense.  Small business, labor training, and the environment do not appear to be important.  At least that is what a quick examination of the administration's budget suggests to me. 


mbar.jpg (9380 bytes)