Wall Street Journal - September 9, 2003
Alan Murray

Mr. Bush, in a speech in Kansas City outlining his economic plans, assumed a look of steely determination in saying the following: "I have proposed a 4% increase in discretionary spending for this year's budget. It's about equal to the increase of the average family budget. If it's good enough for American families, it ought to be good enough for the appetite of some of the congressmen. They need to stick with that agreement. They need to understand that in order to cut the deficits in half, we must have spending discipline in Washington, D.C."

Spending discipline? A 4% increase in spending? Even as he spoke, his aides were putting final touches on a plan to ask Congress for $87 billion to fund operations in Iraq and Afghanistan -- an amount that boosts discretionary spending by an additional 10%. And lest anyone think this is a "temporary" bump in spending, the president repeated his warning Sunday night that the war on terror will be "a lengthy war, a different kind of war, fought on many fronts in many places."

Then there's the $400 billion over the next decade the president wants for a prescription-drug benefit for senior citizens. Initially, he tied that proposal to efforts to cut the cost of Medicare in the long run. But he's now abandoned most of the cost-savings proposals. And there's the spending he needs for his $15 billion effort to fight AIDS in Africa, and his education program, and the farm bill he agreed to, and the countless spending plans stuffed into appropriations bills he declined to veto.

Even the most sympathetic analysts are now coming to the conclusion that the president's talk about spending discipline is so much hot air. Dan Mitchell of the Heritage Foundation notes federal government spending is up from just over 18% of the economy at the end of the Clinton administration, to more than 20% today. And only half of the increase can be attributed to defense and homeland security spending. The other half, Mr. Mitchell says, is "expanding the social welfare state. We are making America more like France."

President Bush can't blame this on Congress. And he can't ignore it. He was right not to pay attention to the budget deficit during his first three years in office. His tax cuts and spending increases helped keep the economy from falling further into recession. But he is wrong if he thinks he can continue to ignore the deficit now that the economy is recovering.

He is presiding over an explosion in government spending, even as he calls for a continuation of his tax cuts. The economic program he laid out in speeches over the past week would put the government budget on a fiscal path that never gets close to balance. And as the economy improves, government borrowing will compete with private borrowing, pushing interest rates higher, as happened in the mid-1990s.

To see the magnitude of the problem, read the latest report from the Congressional Budget Office. On the surface, it shows a government heading back into budget balance by 2012. But that calculation is based on a number of wildly unrealistic assumptions, mostly required by the budget laws. It assumes, among other things, that the president's tax cuts will expire as scheduled. Last week, the president made clear he wants those tax cuts to be permanent -- a change that, by itself, would turn a projected surplus of $200 billion in 2013 into a $150 billion deficit.

The Medicare proposal, also not included in the CBO numbers, would add $64 billion to the 2013 deficit. And the CBO assumes that discretionary spending, which excludes mandatory programs such as Medicare and Social Security, will increase at the rate of inflation -- far slower than it ever has. If you assume spending grows at the same rate as the economy, still much slower than it has the past two years, that adds $200 billion more to the 2013 deficit. In short, deficits could be running at $400 billion a year a decade from now, even before the fiscal tsunami of retiring baby boomers hits the Treasury.

Some readers will be quick to protest that these 10-year projections aren't reliable. That's true. But the head of the Congressional Budget Office is now a Bush man drafted from the White House, who believes in the supply side power of tax cuts. His report incorporates optimistic assumptions about how fast the economy will grow in the future -- and even so, it shows large deficits as far as the eye can see. The projections may be wrong; but they are just as likely to be too optimistic as too pessimistic.

It's time for the president to recognize reality. He needs a new fiscal plan.

Write to Alan Murray at alan.murray@wsj.com

Alan Murray is Washington bureau chief of CNBC and co-host of Capital Report, which airs Tuesday-Friday at 9 p.m. Eastern and Pacific.
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