Sky High

Author: Alexis Simendinger, David Baumann, Carl M. Cannon, and John Maggs

Published: February 7, 2004

"You never know which mode of governance you'll see from Bush," said Republican Stephen Moore, president of the political action committee Club for Growth, as he mused about the president's $2.4 trillion budget blueprint for fiscal 2005 and the potential for a second term.

Some of President Bush's recent actions, including his signing of the omnibus appropriations bill for fiscal 2004 (rife with what some Republicans perceive as wasteful spending), plus revelations about the actual growth in government spending under Bush, and his fanfare about sending astronauts to Mars, are sparking criticism of the president's fiscal stewardship. "Republicans are spending more money than Tip O'Neill ever did," said Moore, referring to the late Democratic House speaker of the Reagan era. "All those things have really hurt Bush in the polls," Moore added. And on top of that, this year's deficit forecast has reached $521 billion.

The public's assessment of Bush's job performance, their appraisal of his handling of the economy, and their approval of his handling of Iraq have all dropped below 50 percent for the first time in three years, according to the latest survey by the Gallup Organization. That's not a position of strength from which to hand Congress a budget for the fiscal year that begins on October 1. And in fact, Congress is poised to set Bush's budget aside and largely build one of its own.

If presidential elections are referenda on the incumbent, then Bush's credibility has surely emerged as an election issue at the start of his fourth year. And with the release of this proposed budget, it becomes evident that not all of the president's credibility issues center on Iraq. In the immediate future, however, the thinking at the White House seems to rest on the assumption that few voters are going to support or oppose him based solely on the nation's existing or envisioned red ink. "From 1982 to 1997, we were in a world where the dominant issue was reducing the deficit," said C. Eugene Steuerle, a former Reagan Treasury Department official and now a tax economist with the Urban Institute, a nonpartisan economics and social-policy organization based in Washington. "From 1997 to today, there has been a remarkable turnaround... We've been in a world where Congress and the White House haven't been accounting for the losers. Who pays? The real question is, How are they going to move into a period where the losers -- that is, the payers -- are much more clearly recognized?"

Politics: 'Let's Tell the Truth'

Conditions may be present for the Perfect Deficit Storm: Low tax rates; a stagnant job market; huge and unanticipated military expenditures; new entitlements; a nonmilitary discretionary budget pressured to encompass new commitments, including the administration's moon and Mars missions, education funding to states, and a pending energy bill; the election-year climate; and extremely polarized political parties in no mood to work together.

When George W. Bush campaigned for the presidency, the budget was in the black for the first time since Lyndon Johnson occupied the Oval Office. Bush's approach was simple. "Some say that a growing federal surplus means Washington has more money to spend," he said in accepting the Republican presidential nomination. "But they've got it backwards. The surplus is not the government's money. The surplus is the people's money."

When the recession emerged in 2001, the president pitched his tax cuts as a means to jump-start the economy. The cuts, along with the effects of the recession and increased defense spending in the wake of 9/11, have blown a hole in the federal budget.

Bush's predicament is not new; it's cyclical. The rub is that the available avenues to tackle these problems have been weakened by competing political forces, including institutional cynicism about the deficit itself. Minor-league deficits in times of war and recession are generally deemed acceptable. Big-league deficits, accompanied by tax "relief" as far as the eye can see, are another matter.

William A. Niskanen, who was an economic adviser in the Reagan White House, recalls that in the 1980s it was House Ways and Means Committee Chairman Dan Rostenkowski, D-Ill., who sponsored the Reagan tax cut, and two other Democrats, Sen. Bill Bradley of New Jersey and Rep. Dick Gephardt of Missouri, who proposed the 1986 corrective. "Today you can hardly imagine Tom DeLay and Nancy Pelosi agreeing on the time of day," Niskanen noted, referring to the conservative House majority leader from Texas and the liberal House minority leader from California. "There is much more polarization than in my day."

Another problem is that in the last 25 years, there has been almost an inverse relationship between straightforward attacks on the deficit, and political benefits for taking it on. Just ask Jimmy Carter, Walter Mondale, or the current president's own father. In 1980, George H.W. Bush famously described Ronald Reagan's vow to cut taxes and build up American military spending, all while balancing the budget, as "voodoo economics." That stance ensured him a second-place finish to Reagan in the Republican primaries. Bush was correct in believing the numbers didn't add up, but the political cost was borne by Carter, who lost to Reagan, and later by his vice president, Mondale.

"Let's tell the truth," Mondale said at the 1984 convention that crowned him the Democratic presidential nominee. "Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did."

But Mondale lost, and badly. The funny thing was that Reagan, like Franklin Roosevelt before him, considered deficit spending a sin -- as did Carter, who vowed to eliminate the deficit when he ran for president in 1976. Instead, it was still $41 billion in 1979, and ballooned to $74 billion (roughly $147 billion in today's dollars) in 1980. It was these numbers that Reagan, the son of an alcoholic, derided in almost moralisticterms, repeatedly telling Americans that this national propensity toward "binge spending" must be curtailed.

To convince himself he had not fallen off the wagon, Reagan swallowed the sweet elixir of supply-side economics, a theory never accepted by his own budget advisers, but subsequently embraced -- in Reagan's name -- by Republicans of all stripes.

Reagan's former vice president, the elder Bush, learned his lesson in 1990 when he assented to a deficit-lowering package of spending decreases and revenue increases that defied the most-conservative members of his party. Most economists believe that Bush's move greatly helped the economy begin a gradual recovery in the mid-1990s, but conservatives still characterize it as a betrayal of Bush's "No New Taxes" pledge. In the 1992 campaign, Bush was ambushed on the budget from the right (by Pat Buchanan), from the center (by Ross Perot), and from the left (by Bill Clinton).

President Clinton, who made no such pledge, shepherded through Congress a budget that primarily raised revenues from two sources: a 4.3-cent-per-gallon gasoline tax and an increase in the income-tax rates of top wage earners. Clinton's vaunted deficit-reduction efforts provided no real curbs on spending, but the increased revenues were real enough, and the notion of a Democrat who was willing to address the deficit made the financial markets giddy.

Clinton was not rewarded by Washington's power base or by the voters, however. GOP intransigence on Clinton's budget was unanimous, but the Republicans didn't pay a price for their wildly inaccurate predictions of economic doom and gloom. In fact, the party swept to power in both houses of Congress in the 1994 midterm elections. Conversely, after Republicans goaded Clinton into proposing a balanced budget, it was the GOP that suffered in 1996 and 1998 when the president delivered.

Can this track record of absurdity -- that ineffective government is good politics -- be what Bush is counting on? It's hard to see what else he has up his sleeve. His current budget claims a deficit of $1.3 trillion over the next five years, but even that whopping number likely is too low, since the administration hasn't included all of the government's anticipated costs, even those as immediate as the next round of funding to support the occupation in Iraq.

"The economy is improving, and that's good for Bush," said Michael J. Boskin, who was chairman of the White House Council of Economic Advisers during the first Bush administration. Boskin advised the younger Bush to cut taxes in 2001. "There is no doubt the tax cuts have helped the recovery, no doubt at all. But something will have to be done on the deficit side."

If Bush is counting on Democrats to bail him out, he might not have much luck. Pelosi slams Bush on Medicare, not because his estimates of the new prescription drug benefit have risen from $395 billion over five years to $530 billion, but because she wants a much costlier benefit. Democratic presidential front-runner John Kerry may not have voted for last year's $87 billion supplemental request on Iraq, but he hasn't mentioned bringing the troops home, and he calls for larger expenditures for homeland security, education, and other programs.

The upshot, says former Reagan aide Niskanen, is likely to be a huge and involuntary transfer of "intergenerational equity," as this generation of voters spends for programs that the next will have to fund. "I despair about this budget," Niskanen says. "I don't think Bush is being honest with the world. I'm not sure he's being honest with himself."

The Forecast: Rosy Works Her Magic

Like many budget directors before him, Joshua Bolten was tempted by a beautiful woman. Ever since she turned the head of David Stockman 20 years ago, she has been seen regularly at the Eisenhower Executive Office Building. Stockman, Reagan's first budget director, called her Rosy Scenario, and eventually confessed his dalliance in an interview with The Atlantic Monthly.

It's the same story for every budget director. Given the unattractive results of the politics and logrolling that go into making a budget, it is tempting to lean back and let Rosy massage the numbers. Stockman described how he succumbed, and the context may sound familiar: After a massive tax cut and a huge increase in defense spending, he was presented with alarming projections of growth in the deficit. Against his better judgment, he embraced some unrealistically optimistic forecasts of economic growth and revenue from tax cuts, and he produced a budget masking a fiscal imbalance that in 1983 would turn out to equal 6 percent of gross domestic product -- the equivalent of $700 billion today.

At first blush, it appears that Bolten has resisted Rosy's charms. The Bush administration's assumptions about economic growth and revenue are only slightly more optimistic than the expectations of the nonpartisan Congressional Budget Office. The White House estimates that the U.S. economy by 2009 will be only 1.4 percent larger than CBO predicts; the administration's estimate of the unemployment rate between now and then matches CBO's numbers, and projected interest rates are almost identical.

Look elsewhere, however, and there are signs that Rosy has found a new way to work her magic. The new budget doesn't make unrealistic assumptions about economic performance and revenue -- instead it puts forward a rose-colored view of the government's discipline in controlling spending. While this has been a dependable strategy for budget directors in the past, this year's effort sets a new standard for chutzpah.

First, some background. The years 1992 to 2002 were times of relative fiscal restraint by the federal government. Spending limits in force for most of that time, a sharp decline in the military costs after the end of the Cold War, and a president determined to leave a legacy of fiscal success combined to keep the overall growth in government spending to 45 percent in those years, compared with an 85 percent increase from 1982 to 1992. Discretionary spending, which excludes Social Security and other entitlements, grew an average of 3.2 percent per year from 1992 to 2002, with the biggest growth coming after 1998, when budget surpluses appeared on the horizon.

Under Bush, the demands on government escalated sharply: The first recession in 10 years raised costs for government benefits such as unemployment insurance, and the 9/11 attacks drove up spending for homeland security and the military. As a result, discretionary spending rose an average of 12.8 percent a year in 2002 and 2003, according to CBO, and the Office of Management and Budget says it will rise another 9.9 percent this year.

Against this background, consider the Bush administration's predictions of how discretionary spending would increase from 2004 to 2009 -- a span of six years, including the current fiscal year. According to the new budget, discretionary spending for that time will increase by a total of 3.7 percent. That's not an average annual increase. That's the total for six years.

This is a mind-boggling number. According to the administration, discretionary spending will rise 9.9 percent in 2004 and then only 0.6 percent in 2005. Discretionary spending is actually supposed to decrease by a full 2 percent in 2006. Then it edges up 1.3 percent in 2007, and 2 percent in both 2008 and 2009.

While similarly slow growth in spending persisted for several years in the 1990s, it took place during a military build-down and only because of statutory spending limits that Bush and Congress have rejected. Once the limits came off, spending exploded.

If we lived in a pre-9/11 world, with no threats at home or abroad, and no cost of occupations in Afghanistan and Iraq, these numbers would still seem far-fetched, given government's historically inexorable growth. But with these large and unaccountable costs still expected, and with a president who hasn't yet tried to control nondefense discretionary spending, this forecast seems delusional. By comparison, the administration's conventionally unrealistic estimate of modest growth in entitlement costs, in the face of Bush's promise to tackle the looming crisis in Social Security and Medicare, is hardly worth mentioning.

If he is sincere, then Bush intends to dedicate his second term to something far more radical than tax cuts: essentially freezing the growth of much of the federal government. On the other hand, if spending increases as it has, then deficits could quickly create economic problems never seen before.

Programs: The Entitlement Squeeze

President Bush says the bleak federal budget picture over the long haul can be chalked up to ... population. The United States needs more workers, and fewer old people: "The main source of the long-run fiscal problem is demographics," Bush's fiscal 2005 budget asserts. On its face, Bush's diagnosis is true enough. The White House is well aware of the red-ink anxiety that lurks over the horizon, just after Bush would be completing the second term he hopes for. The first Baby Boomers become eligible for early Social Security retirement benefits in 2008, and for Medicare in 2011.

"While the outlook for the budget improves considerably over the next five years," the president's budget document concedes, "looking at the budget over a much longer term yields a less encouraging picture... Fundamental forces are at work that will create serious fiscal problems if left unaddressed."

So, while projecting a staggering "peak" deficit of $521 billion for fiscal 2004, and a more serious long-term problem with entitlements just ahead, what Bush is not doing in his fiscal 2005 budget is as attention-getting as what he is doing. The president is not seeking to balance the budget. He is dead-set against juicing revenues by raising taxes, and he is fighting to make previously enacted tax cuts permanent. He is accepting the trend line of America's aging -- and eventually less-productive -- population (which by itself will erode the nation's GDP in the future). Bush is not championing immediate action to keep Social Security afloat when the Baby Boomers retire, or to retreat from the exploding costs of Medicare.

In the last year of this term -- an election year -- the president is kicking the can down the road, something he had said he would not do if he came to Washington: "I came to office to solve problems, not to pass them on to future presidents and future generations," he has repeated in numerous speeches to supporters.

The president does want to put the brakes on federal spending for programs he doesn't see as priorities. In taking that stand in his fiscal 2005 budget -- calling for a basic freeze, or 0.5 percent growth in spending for nondefense, non-homeland-security spending -- Bush is trying to appease Republican conservatives who want to shed the unwelcome "bigger government" reputation that has dogged their control of the White House and Congress.

But the administration's focus on curbing discretionary spending -- on crop insurance, Amtrak, and housing assistance for the poor, for example -- cannot fix a growing shift of obligation toward mandatory government spending that is well under way. The 21st-century budget debate will have to extend far beyond the terrain of discretionary spending that Bush staked out this week. The important debate, still ahead in Washington, will have to dig deep into the breadth of government responsibility that Americans favor, the program costs attached to those expectations, and the revenues needed to pay those bills.

The "intergenerational equity" debate forecast by Niskanen and many other experts is not hyperbole. Today, Social Security, Medicare, and Medicaid account for a combined 8.5 percent of GDP. That still leaves room in the budget for other funding choices. By the time Bush is 90, in 2040, entitlements are projected to double to 17 percent as a share of GDP, according to CBO. And by the time Bush's daughters draw Social Security and Medicare benefits, around 2060, about one-fifth of all government spending could be absorbed by those three programs alone. When defense and interest obligations are woven into the picture, the wiggle room for other federal spending all but disappears if today's fiscal decisions remain unchanged. Total government spending as a percentage of GDP has been on an upward trajectory since 2001 and is now at 20 percent, according to OMB.

"If you don't do anything, the Boomers are going to push that number to 30 percent," said Barry Anderson, a former assistant director for budget review at OMB and former deputy director at CBO. "What are you going to do? Your choices, Mr. and Mrs. America, are: You can cut benefits to the oldsters; increase current taxes on the youngsters, meaning those working; cut other government spending; borrow from the next generation; or convert, at least in part, from defined benefit to defined contribution [for retirement]. The answer is, of course, that we are going to do all of those. I don't think we have a choice. How hard it is to do all of those is, in part, a function of what we do today, this year."

Taxes: Are They Headed Up?

According to former Treasury Secretary Robert Rubin, the greatest barrier to confronting the government's fiscal problems is a rhetorical one. "We have a president who has made it clear that he is committed to tax cuts, that he actually wants to cut taxes more," Rubin said. "He's painted himself in a corner." Rubin and the leading Democratic presidential candidates call for a combination of spending limitations and tax increases to put the government back on the path to a balanced budget, and they contend that re-electing Bush would result in fiscal disaster.

Nevertheless, the conventional wisdom is that most politicians of both parties will support extending Bush's cuts and do whatever they can to avoid raising taxes. "I think what you have is a situation where the public has been led to expect lower taxes, and most politicians -- Republicans and Democrats, I would add -- find it easiest to go along," said Rubin. Peter Orszag, a former Clinton White House economist, says that Bush can count on most lawmakers to support his proposal to make his tax cuts permanent, because "it is just very difficult for a politician to justify what looks like a tax increase."

It is certainly hard to find a Republican who thinks that Bush, with a GOP-controlled Congress, would ever agree to raise taxes. "I just can't see him agreeing to raise individual income-tax rates," said Bill Archer, former GOP chairman of the House Ways and Means Committee. As a presidential candidate, Bush signed the Taxpayer Protection Pledge, opposing "any and all efforts to increase the marginal income-tax rates for individuals and/or businesses."

But if Bush does stick to his guns, he'll be defying history. The Treasury Department has published a history of tax cuts and increases, and it shows that cuts such as those championed by Bush have a brief shelf life. According to Treasury, there have been three large tax cuts between World War II and the current administration: in 1945-1948, in 1964, and in 1981.

According to Treasury, the 1945-1948 cuts were erased by tax increases within three years, two of them in 1950 and another in 1951. The 1964 tax cut was more than offset by tax hikes in 1966 and 1968. Reagan's 1981 cut lasted longer: It wasn't until the 1990 tax increases that substantially all of that tax reduction was offset, but the crucial point is how quickly the tide turned in the face of growing deficits. Reagan wiped out more than one-third of his cut in 1982 and he raised taxes again in 1983 and 1984. He signed onto a 1986 tax "reform" that was billed as revenue-neutral in the long term but was an immediate jolt for taxpayers, raising taxes $18 billion in 1987,or 2.3 percent.

Opinion leaders commonly call tax increases politically impossible, but it would be more accurate to say that, so far, presidents have found it politically impossible to avoid tax increases: Reagan didn't; Bush's father didn't; and Clinton didn't hesitate to raise taxes after he was elected on a promise to control the deficit.

And at least one well-known Republican is willing to predict that Bush, if re-elected, can't buck history. Former New Hampshire Sen. Warren Rudman sponsored legislation in 1985 that established limits on federal spending, and he backed the 1990 budget deal that raised taxes in combination with spending cuts to reduce the deficit. He has no doubts that such a compromise will be needed within a few years: "In that timeframe, when I think this deficit really starts to [hurt the economy], the president isn't going to have any choice."

Bush is campaigning on a promise to make his tax cuts permanent, rather then letting them begin to expire at the end of 2010. But conservative commentator Bruce Bartlett agrees with Rudman that higher taxes in some form will be needed sooner than that to build a congressional consensus for major budget cuts. Bartlett says, "You won't find a Republican in Congress who'll admit" that taxes will be going up, "but there's not room enough to cut." Discretionary spending outside defense represents less than a fifth of the budget.

Rudman and Bartlett agree that Bush will probably avoid raising individual income-tax rates, which were the heart of his tax cuts in 2001 and 2003, but they say he has other options. Bartlett predicts that corporate taxes will be a likely target if President Bush is re-elected. Rudman noted that most of the tax increases after the Reagan cuts targeted businesses, and that Bush's Treasury Department has already been pushing a campaign to "close business-tax loopholes." Archer, who now lobbies for business-tax cuts on behalf of accounting firm PricewaterhouseCoopers, agreed that businesses would be the likeliest victims of new tax hikes to close the deficit. Although there is an impression that Bush's economic policies have been skewed toward business, Archer said, "that hasn't been the case for taxes."

Rudman foresees splits among conservatives if the president must choose where to raise taxes. If one target for an increase is Bush's tax credits for children, Rudman said, he could imagine "an unholy alliance" between social conservatives and the urban poor in lobbying against such an increase.

But the most likely vehicle for a tax increase could again be "tax reform." Bush has often spoken of his desire to simplify the tax code, and his pending proposal for tax-free savings accounts represents a radical reform. Bartlett noted that "closing loopholes" to raise revenue was a major selling point for tax reform in 1986, and it would be easiest to use a top-to-bottom revamping of individual taxation to hide the fact that some people's taxes would be going up. It also might be the best way to build enough support for higher business taxes, because of what Bartlett called the "dirty secret" of corporate taxation: "Corporations don't mind paying higher taxes, as long as you find a way to make their competitors pay more."

Long term, it seems apparent that without a radically smaller government, the levels of taxation that Bush is calling for can't be sustained. According to an analysis by Brookings Institution economist Bill Gale, simply making Bush's 2001 cuts permanent would reduce government revenue by roughly the amount of the combined shortfall for Social Security and Medicare over the next few decades.

Congress: Forcing an 'Unnatural Act'

Republicans and Democrats agree that the soaring deficit is a major concern. But they cannot agree on the cause, let alone the solution. Republicans say spending and an economic recession pushed the deficit over $500 billion. Democrats argue that the Bush tax cuts account for a huge part of the problem.

As anyone who has struggled with the process will tell you, budgets are not worth the paper they are written on if they cannot be enforced. But Congress's enforcement tools expired in 2002, and so far, Republicans and Democrats cannot agree on new ways to force Congress to spend less.

Between 1990 and 2002, spending and entitlement increases were subject to the so-called "paygo," or pay-as-you-go, rule and caps on discretionary spending, although during that time Congress routinely ignored both. Under the Budget Act of 1990, Congress set statutory spending caps for appropriators. The act also required any increases in entitlement spending or tax cuts to be paid for ("offset") through either cuts in entitlements or accompanying revenue increases.

"The resolve of Congress was enforced by the budget process," said Robert Reischauer, president of the Urban Institute and former director of CBO. "Paygo and discretionary-spending caps enforced a set of decisions. If you tried to retreat from that set of decisions, you had to pay for it." A senior Senate Democratic aide added, "Everybody was treated fairly."

Many budgeteers credit the paygo rule and the spending caps with leading to a balanced budget. However, slowly but surely, lawmakers began to evade the spending caps through a variety of gimmicks, such as declaring routine spending an "emergency." In addition, Republicans argued that tax cuts should not be included in the paygo rule because, unlike entitlement spending, tax cuts benefited the economy. In 2002, both rules expired with little notice.

These days, Congress routinely ignores the spending limits set in the annual budget resolution, and it has enacted huge tax cuts and costly Medicare prescription drug benefits. This year, as the deficit climbs above $500 billion, members on both sides of the aisle are calling for some mechanism for Congress to control itself.

"There's a growing sentiment that we can't afford to [spend] more," said an aide to the Blue Dog Coalition of moderate House Democrats. A Republican agreed. "The paygo process did work," said Richard E. May, a legislative consultant with Brownstein, Hyatt & Farber and a former GOP staff director of the House Budget Committee. "It stopped a lot of spending, and on the opposite side, it stopped a lot of tax cuts. Given the size of the deficit of today, maybe it's time to look at paygo again."

The Bush budget promises that the president will send Congress a set of tools to control the budget -- tools that Congress has so far been unwilling to enact. "The president's budget-enforcement proposal is based on the premise that any increase in spending should be offset by a reduction in other spending," the administration's budget document states. Bush calls for re-creating discretionary-spending caps that, if exceeded, would trigger cuts in government programs. However, he does not require tax cuts to be paid for through spending cuts elsewhere in the budget.

Conservatives applaud that approach. "Tax cuts pay for themselves through the economic growth they generate," said Paul Beckner, president of Citizens for a Sound Economy. Another conservative analyst, Dan Mitchell, a senior economist at the Heritage Foundation, said that under the budget rules, it would take a supermajority of members to pass bad policies that would increase spending. "Tax cuts are good policy," he said.

But Democrats have already said they would not agree to a paygo rule that did not cover tax cuts. The senior Senate Democratic aide said that, in the 1990s, both appropriators and tax writers agreed to the paygo rules and spending caps because they knew that each group would feel the same pain, but now, "those who would feel constrained would not be willing to buy into the constraints."

Budgeteers say the outlook for Congress to enact any kind of statutory spending restraints is uncertain. "I think there's a good chance for statutory spending caps," May said. But when asked about paygo, he said, "I don't think Congress is ready yet." Reischauer predicted that Congress will respond only after it sees "tangible, adverse economic circumstances that are attributable to having large deficits." He added that controlling spending is an "unnatural act" in an election year.

But conservatives already are putting pressure on Bush to control spending, urging him to veto any bloated spending bills. "Now is the time to go beyond what was there in the past," said an aide to the conservative House Republican Study Committee, adding that spending caps and paygo might not be strict enough this time around. In the absence of any statutory requirements, he said, conservatives will insist that Congress enforce the annual budget framework, described in big-picture terms in the budget resolution. "We're going to focus on making sure that we live within it," he said.

A Long Uphill Climb

The projected rise in expenditures for Social Security, Medicare, and Medicaid could drive total federal outlays, as a percentage of gross domestic product, well above the levels they have held throughout much of the post-World War II period.

Federal Outlays as a Percentage of GDP

Social Security Medicare Medicaid

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
2070
2071
2072
2073
2074
2075

0%
0.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.2
0.3
0.5
0.6
0.7
0.9
1.1
1.3
1.5
1.8
2
2.2
2.3
2.5
2.6
2.6
2.5
2.7
2.7
2.7
2.9
3 0
3.3
3.4
3.8
3.9
4.1
4.3
4.3
4.2
4.2
4.3
4.6
4.8
5 1
4.6
4.6
4.5
4.5
4.4
4.3
4.3
4.5
4.6
4.6
4.6
4.6
4.5
4.5
4.4
4.3
4.2
4.3
4.4
4.4
4.4
4.3
4.3
4.2
4.3
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.9
6 4
6.1
6.2
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.3
6.2
6.2
6.2
6.2
6.1
6.1
6.1
6
6
6
6
6
6
6.1
6.1
6.1
6.1
6.1
6.1
6.1
6.1
6.1
6.1
6.2
6.2
6.2
6.2
6.2
6.2
6.2
6.2
6.2
6.2
6.2

0%
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.3
0.5
0.6
0.6
0.6
0.6
0.6
0.7
0.8
0.9
1
1
1.1
1.2
1.3
1.4
1.5
1.5
1.6
1.6
1.6
1.6
1.6
1.7
1.8
1.9
2 1.
2.1
2.2
2.3
2.3
2.2
2.1
2
2.2
2.2
2.3
2.3
2.3
2.4
2.5
2.5
3.1
3.7
3.7
3.7
3.7
3.7
3.7
3.6
3.6
3.6
3.6
3.6
3.7
3.9
4 3.
4.1
4.3
4.4
4.5
4.6
4.8
4.9
5 3.
5.1
5.2
5.3
5.5
5.6
5.7
5.8
5.9
6 3.
6.1
6.1
6.2
6.3
6.4
6.4
6.5
6.6
6.6
6.7
6.8
6.9
7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
8.1
8.2
8.3
8.4
8.5
8.7
8.8
8.9
9
9.2
9.3
9.5
9.6

0%
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0.4
0.4
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.6
0.5
0.5
0.6
0.6
0.6
0.6
0.7
0.9
1.1
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.3
1.4
1.5
1.6
1.7
1.7
1.8
1.8
1.8
1.8
2
2.1
2.3
2.4
2.6
2.7
2.9
3
3.2
3.3
3.4
3.4
3.5
3.5
3.6
3.6
3.7
3.7
3.8
3.8
3.8
3.7
3.7
3.6
3.6
3.6
3.5
3.5
3.4
4
3.5
3.5
3.6
3.6
3.7
3.7
3.8
3.8
3.9
3.9
3.9
4

4.1
4.1
4.1
4.2
4.2
4.3
4.3
4.4
4.4
4.5
4.5
4.6
4.7
4.7
4.8
4.8
4.9
5
5.1
5.1
5.2
5.3

Source: C. Eugene Steuerle and Adarn Carasso, The Urban Institute, based on CBO data

Spending History

Spending on entitlements and other mandatory programs, such as Medicare and Social Security, has soared since 1962, while discretionary spending has dropped as a percentage of gross domestic product.

Discretionary Mandatory Net Interest

Spending Spending on Debt

1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003

12.7%
12.5
12.3
11.3
11.9
13.1
13.6
12.4
11.9
11.3
10.9
9.9
9.6
10.1
10.1
10
9.9
9.6
10.1
10.1
10.1
10.3
9.9
10
10
9.5
9.3
9
8.7
9
8.6
8.2
7.8
7.4
6.9
6.7
6.4
6.3
6.3
6.5
7.1
7.6

4.9%
4.7
4.9
4.6
4.6
5
5.6
5.6
6
6.7
7.4
7.5
7.6
9.7
9.8
9.2
9.2
8.8
9.6
9.9
10.4
10.6
9.4
9.7
9.5
9.1
8.9
9
9.9
10.1
10.4
10.2
10.3
10.1
10.2
9.9
9.9
9.8
9.8
10.1
10.7
10.9

1.2%
1.3
1.3
1.2
1.2
1.3
1.3
1.3
1.4
1.4
1.3
1.3
1.5
1.5
1.5
1.5
1.6
1.7
1.9
2.2
2.6
2.6
2.9
3.1
3.1
3
3
3.1
3.2
3.3
3.2
3
2.9
3.2
3.1
3
2.8
2.5
2.3
2.1
1.6
1.4

Source: CBO, based on data from OMB

Budget Quiz: Who Said This?

1. "These long-run budget projections show clearly that the budget is on an unsustainable path, although the rise in the deficit unfolds gradually."

2. "A government that borrows must eventually pay for what it has borrowed."

3. "Under an extension of current-law formulas and the policies in the budget, almost all of the budget would go to these three programs alone [Social Security, Medicare, and Medicaid by 2050]. That would severely reduce the flexibility of the budget, and the government's ability to respond to new challenges."

4. "Eventually, the rising trend in health care costs for both government and the private sector will have to end, but it is hard to know when and how that will happen. 'Eventually' could be a long way off. "

5. "Federal responsibilities extend well beyond the next five or 10 years, and problems that may be small in that timeframe can become much larger if allowed to grow."

6. "The main source of the long-run fiscal problem is demographics."

Budget Quiz Answer: All are from Bush's 2003 budget document.

How the Public Views Deficits

Poll questions about budget deficits have varied over the years, but they offer snapshots of public sentiments. Deficit and surplus figures are in constant (2000) dollars.

December 1984
Deficit: $313 billion in fiscal 1985
54% The federal deficit is a "very serious problem" for the country.

October 1990
Deficit: $327 billion
67% It is "very important" to reduce the federal budget deficit.

July 1991
Deficit: $341 billion
23% The federal budget deficit is "the most important issue" facing the United States. (The only issue to outrank the deficit was education.)

August 1993
Deficit: $228 billion
67% The issue of the federal deficit is "very important" to me personally.

February 1994
Deficit: $180 billion
24% The federal budget deficit is "the most important issue" facing the country. (The only issue to outrank the deficit was unemployment.)

April 1997
Surplus: $72 billion in fiscal 1998*
58% The federal budget deficit is a "high priority" for the country.(*Public knowledge lagged behind improving budget picture.)

January 1998
Surplus: $129 billion in fiscal 1999
40% The federal budget deficit is a "very serious" problem.
34% The federal budget deficit is "very important" in determining how I will vote.

June 2000
Surplus: $125 billion
47% It is "very likely" or "somewhat likely" likely that if George W. Bush is elected president, the budget would get out of balance, with a return to deficit spending.

August 2001
Deficit: $152 billion in fiscal 2002
54% It is more likely next year that the government will have a budget deficit.

January 2002
Deficit: $353 billion
51% The government should run a deficit if necessary when the country is in a recession and is at war.
64% It is "extremely important" or "very important" that the president and Congress deal with the federal budget deficit in the next year.

January 2003
Deficit: $481 billion est.in fiscal 2004
68% It is "extremely important" or "very important" that the president and Congress deal with the federal budget deficit in the next year.
67% The fact that the United States will have federal budget deficits for the foreseeable future is a "crisis" or a "major problem."

May 2003
51% When thinking about the trade-offs the government must make when creating a federal budget, I would rather see the government give a higher priority to reducing the federal budget deficit than cutting federal income taxes. (44 percent said cutting federal income taxes was preferable.)

July 2003
77% The federal budget deficit is a "crisis" or a "major problem" for the country.

November 2003-January 2004
3% The federal budget deficit is the most important problem facing the nation.

SOURCE: Gallup Organization; Office of Management and Budget