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10/12/90 147

THE "NEW' BUDGET AGREEMENT PART 1I BACK TO CARTERNOMICS

(Updating Executive Memorandum No. 289, "The 'New' Budget Agreement: Part 1, From Bad to Worse," October 9, 1990.) Congressional committees are working feverishly to put meat on the bones of the budget resolu- tion passed last Monday. If Congress sticks to its timetable, and George Bush signs into law on Oc- tober 19 the budget package being drafted by congressional Democratic leaders, he may well be remembered as the President responsible for not just the largest fiTst-year tax increase in American history, but also the nation's largest ever domestic spending increase. The spending proposals out- lined in the budget resolution will increase overall federal spending on average by 6 percent per year, leaving domestic spending $245 billion higher in fiscal 1995 than in fiscal 1990. This means that for every dollar in new taxes raised by this budget, federal spending will rise by $1.90. During the past six months of budget discussions, Bush and congressional negotiators have told Americans that deep and painful spending cuts would be needed to solve the deficit crisis. Yet, they added, spending cuts alone would not solve the problem; taxes too would have to be raised. Given such talk of deep cuts, Americans naturally would expect the fiscal 1991 spending levels agreed by summiteers to be less than last year's levels. In fact, runaway spending will continue. Hefty Non-Defense Increases. Only one spending area - defense - will receive less money in 1991 than it did in fiscal 1990: $2.9 billion less in the first year and $9 billion less by 1995. Every other program area in the $1.3 trillion budget package will receive billions of dollars more in fiscal 1991 than in fiscal 1990. Not one bit of pork, waste, fraud, and unnecessary spending will be cut out of the budget. Instead, each non-defense program area will receive hefty increases next year. Moreover, this new spending comes on top of the $73 billion, or 11 percent, hike in domestic spend- ing between fiscal 1989 and fiscal 1990. Under this new budget package, for instance, energy programs receive 20 percent more funds in 1991 than in 1990; the Justice Department is given 17.1 percent more; agriculture grows by 12.8 percent; health programs rise 12.5 percent; and general government expenses, including funds for huge increases in congressional salaries, jump by 10.4 per- cent (See table on page 2.) The budgetary technique allowing politicians to spend more while talking incessantly of cuts is called "current services" or "baseline" budgeting. Under this accounting device, introduced in the 1974 Budget Act, spending for each program is assumed to increase by the projected rate of infla- tion and the expansion of services authorized under current law. This automatic increase creates the new baseline for the program. Example: a program that costs $100 million in one year might be

1991 Budget Proposed Spending Levels Compared to 1990 Levels

Fiscal Fiscal Change 1990 1991 1990-1991 (billions)

(050) National Defense $299.9 ...... $297.0 ........ -$2.9 ......... -0.96% (150) International Affairs $15.5 ........ $17.4 ........... $1.9 .......... 12.30% (250) General Science, Space and Technology $14.2 ........ $15.2 ........... $1.0 ............ 7.00% (270) Energy $3.3 .......... $4.0 ........... $0.7 .......... 21.20% (300) Natural Resources and Environment $17.8 ........ $18.9 ........... $1.1 ............ 6.20% (350) Agriculture $12.5 ........ $14.1 ........... $1.6 .......... 12.80% (370) Commerce and Housing Credit $75.7 ........ $87.0 ......... $11.3 .......... 15.00% (400) Transportation $29.5 ........ $30.7 ........... $1.2 ............ 4.10% (450) Community and Regional Development $8.3 .......... $8.6 ........... $0.3 ............ 3.60% (500) Education $38.3 ........ $41.8 ........... $3.5 ............ 9.10% (550) Health $58.2 ........ $65.5 ........... $7.3 .......... 12.50% (570) Medicare $96.9 ...... $104.9 ........... $8.0 ............ 8.30% (600) Income Security $148.5 ...... $160.5 ......... $12.0 ............ 8.10% (650) Social Security $248.7 ...... $266.3 ......... $17.6 ............ 7.10% (700) Veterans Benefits and Services $29.4 ........ $31.7 ........... $2.3 ............ 7.80% (750) Administration of Justice $10.5 ........ $12.3 ........... $1.8 .......... 17.10% (800) General Government $10.6 ........ $11.7 ........... $1.1 .......... 10.40%

projected by the baseline budgeting method to receive $110 million the next year. If Congress ap- propriates $105 million for the program, this is recorded as a $5 million "cut." To any average American, of course, this would be a $5 million increase. By resorting to the "current services" charade and by cutting $55 billion in real (inflation ad- justed) dollars from defense, the liberal leadership in Congress can claim that the new budget pack- age slows the growth of federal spending. In fact, non-defense domestic spending goes up by $245 billion, or 34 percent, during the five-year life of this package - excluding net interest payments on the federal debt and the "off budget" cost of the savings and loan bailout. This increase in non- defense spending exceeds the total increase in non-defense spending during the entire 1980s. In other words, George Bush and the congressional leadership will increase domestic spending faster in the first five years of this decade than was achieved during the full ten years of the previous decade. Four Years of Carter Outdoing Carter. Bush is well on vs. the road to breaking the spending records set by Jimmy Carter. The Four Years of Bush spending levels established in the budget package will mean a real in- (Billions) Constant 1989 Dollars crease in domestic spending of at least $100 $91 $91 billion. This is close on the heels of the $94 billion real increase in total $so- Bush federal spending during the four years $68 of the Carter Administration. If the arter Bush Administration fails to exceed $so- the Carter Administration in its spend- ing, it will only be because defense $40- spending will decrease in real terms $26 by over $55 billion under Bush. $20- Defense spending under Carter in- creased by $26 billion in real terms. $0 Coupled with the huge tax increases scheduled in the budget resolution, -$20 . ... ...... .... and calls from the Administration for the Federal Reserve Board to ease monetary policy, the President thus -$40 . . .. . . ... ........... . . .. . ............ . seems set to bring back the economic disasters of escalating taxes, economic stagnation, and inflation that charac- $55 terized the Carter Administration. Defense Spending Non-Defense Spendln;*

Scott A. Hodge Grover M. Hermann Fellow in *Excluding interest payment and deposit insurance. Federal Budgetary Affairs Carter fiscal years 1978-1981. Bush fiscal years 1990-1993. (Bush years based upon the most recent budget agreement)