Between now and the latter part of December, the US Congress and the White House will revive a much-loved theatrical tradition: the battle of appropriations. Back in February George W. Bush set out his budget request for spending in the fiscal year that started in October. Congress then devised a plan of its own, not that different from the president’s. Spending bills conforming to that scheme have duly been passed by both houses. Mr Bush, accusing Congress of fiscal irresponsibility, says he will veto most of them. There will now be weeks of accusations and counter-accusations, talk of fiscal paralysis and threats of dire consequences. It is no way to run a government but the delays and uncertainty, the preening and posing, the stunts and thrills, at least have a cosy familiarity. It would seem strange to have spending bills passed in an orderly fashion, in time for the fiscal year they relate to, so that no omnibus packages or other routine emergency manoeuvres were required to keep the wheels of government turning – all quite out of the ordinary. This performance is not about good government, after all. It is about making a point. The White House’s point, and I laugh as I write this, is that the Democrats cannot be trusted with the public purse. Though this may be true, coming from Mr Bush it is audacious by any standard. Spending has surged on his watch – and not just on defence or homeland security. He has been an equal-opportunity spendthrift. Now, at the start of his last full fiscal year as president, and at the very moment he submits a supplemental request for additional spending on Iraq (an extra $46bn, for a total of $196bn this year), he asks to be recognised as an old-fashioned fiscal conservative. In its way, it is impressive. His criticisms of Congress on this are not just hypocritical but substantially false as well. The Center on Budget and Policy Priorities (a liberal-leaning but scrupulously accurate think-tank) points out that “appropriated” domestic spending – the two-fifths of all domestic federal spending that is voted on each year – adds nothing to the fiscal burden under the congressional budget proposal. For defence spending, Iraq and other supplementals aside, the president’s request and the congressional plan are in fact almost identical. Under both, defence spending is 3.5 per cent of gross domestic product in 2007, 3.8 per cent in 2008 and 3.4 per cent by 2012. As for non-defence spending, the White House wants to cut it from 3.3 per cent of GDP in 2007 to 3.1 per cent in 2008 and 2.7 per cent by 2012; the supposedly reckless Congress, in contrast, wants to keep it at 3.3 per cent in 2008 and cut it to 3.0 per cent by 2012. Measured this way, the “runaway spending” Congress is accused of proposing is actually a cut. There is mighty upward pressure on the budget in both the short term and longer term, to be sure. In the short term it is coming from Iraq and other emergencies, which are outside the budget process. In the long term it is coming from the three-fifths of domestic spending that is not appropriated each year and therefore not in the contested spending bills. The big “entitlement” culprits are Social Security and above all Medicare, the healthcare system for the elderly. Expect them to make no appearance in the budget-crisis farce of the next two months. Democrats’ anger over the president’s threatened vetoes is easy to understand. The party sees defence spending crowding out domestic programmes it would ordinarily wish to increase. In their budget proposal they meet the administration half way in squeezing those domestic programmes; then they get accused – by Mr Bush – of fiscal irresponsibility. Politically, however, they have little to fear. Long ago the Republican party was seen as the party of fiscal responsibility. Thanks to this president, those days are over. One recent poll gave the Democrats a 23-point advantage in public trust on handling the budget deficit. Mr Bush may hope that when he starts vetoing spending bills, he will convey a new-found sense of fiscal rectitude and reveal Democrats as conforming to type. But his own fiscal incontinence is too well understood, and the Democrats’ restraint too readily apparent, for this to work. When this year’s phoney budget battle is over, spending pressure from Iraq and Afghanistan will remain. Some $610bn has been appropriated so far for those wars; a new estimate by the Congressional Budget Office talks of $2,400bn by 2017. Medicare is not going away either. Rather the opposite. At the present rate of healthcare inflation, its costs would grow from less than 5 per cent of GDP today to more than 20 per cent of GDP by the middle of the century. Democrats in Congress have shelved the request for additional Iraq funding for the time being, postponing that fight until next year. As far as Medicare and other public spending on health is concerned, their plans for the next administration imply even faster increases in spending than currently projected. Concerning this year’s appropriations bills, their exasperation at the White House is entirely justified. But those bills are a sideshow. Neither party seems willing or able to grapple with the spending issues that really matter.

October 28th, 2007 in Uncategorised | Permalink