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Bush's New Budget Reaganesque.

The debate is heating up over President Bush's proposed budget.

Lawrence Kudlow points out the following facts:

"In aggregate terms, federal spending as a share of GDP is projected to trend around 19.5 percent. This is a historically low spending share of the economy. If it is maintained, then more resources will remain in private hands to foster entrepreneurship, new business creation, jobs, and wealth.

As for the deficit, it is projected to fall to about 1.3 percent of GDP over the next five years from 3.5 percent currently. This is well below European and Japanese deficits. Should the U.S. economy grow faster than the 3.3 percent yearly estimate in the OMB baseline, then the budget will move into balance over the next five years.

More importantly, at lower tax-rates Treasury coffers are rapidly filling up with rising tax collections. The Laffer Curve is alive and well. Over the past twelve months individual income tax collections have increased by 15 percent. Non-withheld individual collections, which include stock market-generated capital gains and dividends, have increased 14 percent. In June 2003 the President signed tax reform legislation that lowered the top personal tax-rate to 35 percent immediately. Investment tax cuts also were part of the reform. The economy’s recovery rate doubled almost immediately from the new dose of supply-side incentives."

From: KiplingerForecasts.com

Critics say these numbers fail to include the costs of Iraq and Afghanistan.

This argument has some degree of merit, as there will likely be a large military supplemental package for 2006. However, these costs are not "baseline" costs. That is, they do not become part of the military's recurring budget.

One of President Bush's directives for Defense Secretary Donald Rumsfeld is to make the military leaner and more efficient. Funding the military through supplementals keeps the military from permanently expanding to war-ready status, even after there is no war, and keeps on track the mission of transforming the military into an agile, 21st-century force.

Critics also say that cutting or limiting non-security discretionary spending is merely a drop in the bucket compared to entitlements and defense spending. They argue that Social Security reform will create a far greater deficit.

On entitlements, they are somewhat correct. Entitlement spending is by far the largest chunk of the U.S. budget, and it is the hardest part to tinker with. But Bush has made it a priority to tinker with it.

Taking on Social Security reform is not going to increase the deficit, it will reduce it from what it would have been without any reform. Real Social Security reform will prevent Social Security from growing out-of-control and swamping the Federal budget. It will move liabilities forward, so they are more manageable in the near future. It will put Social Security on the kind of self-sustaining path that FDR talked about in 1935:

"In the important field of security for our old people, it seems necessary to adopt three principles: First, noncontributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps 30 years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans."


Instead of crediting Bush for taking on the Social Security mess, critics try to paint his plan as increasing the deficit. In reality, one of the core reasons for Social Security reform is making the program less of a government obligation, less of a burden on the budget.

One editorial calling the President, "Mr. Fiscal Conservative - at last" notes:

"Bush has also proposed, as he has done before, eliminating or vastly reducing 150 federal programs, many of them with strong constituencies and powerful congressional backers. Already farmers (big cuts in farm subsidies), veterans groups (cuts in vets' drug benefits), mayors (cuts in community development aid), governors (cuts in Medicaid) and Amtrak supporters (cuts in operating subsidies) have geared up to thwart the president's plan."

Take it to the bank:
Those who have been feigning deep concern about "record" deficits will be the same ones feigning deep concern about "gutting" programs for "the poor" and "the environment" and other pet causes.

In fact, Senate Minority Leader Harry Reid, noting that the budget is a reflection of America's values, said:

"This document is immoral for what it does to those who can't defend themselves."


Reid, with his values schtick, is clearly responding to the exit polls from 2004 that showed "moral values" as a contributing factor in Bush's win. Reid's concern is obviously forced, and it's not working.

Posted by Will Franklin · 9 February 2005 10:51 AM