Labor Research Association – 2005-02-17 09:00:29
Bush’s Budget: All Gun, No Butter
Labor Research Association
WASHINGTON (February 15, 2005) — Bush’s $2.57 trillion budget for 2006 increases military spending by 4.8 percent — not including the war in Iraq — and cuts all other federal government programs by 0.5 percent, with the deepest cuts aimed at services for working Americans and the poor.
The primary purpose of the budget, released on February 7, is to fund the war machine that Bush needs to push forward his foreign policy objectives in the Middle East and guarantee a position of military dominance in the world. The 2006 budget represents a 41 percent increase in military spending since 2001.
For fiscal year 2006, which begins in October of this year, military spending will rise to $419.3 billion, not including the $100 billion that Bush will request for the wars in Iraq and Afghanistan and billions more for the military hidden in other agency budgets.
US military spending is now larger than military spending in the rest of the world combined. The second largest military spender is China, at approximately $51.0 billion a year, followed by Russia at $50.8 billion, Japan at $41.4 billion and the United Kingdom at $41.3 billion. Iran and North Korea — the two countries that Bush most often cites as military threats — spend about $5 billion each.
A Fundamental Shift of the Tax Burden
The Bush budgets no longer represent simple adjustments or new priorities in federal spending, but a set of fundamental changes. The changes include redirecting all federal resources to the military, channeling huge amounts of federal spending to the private sector, shifting the tax burden away from the corporations and the wealthy and onto the working class, and relying on deficit spending to finance the military buildup without raising taxes.
The federal deficit for this year will top $427 billion and bring outstanding government debt to nearly $5 trillion. Bush projects a 2006 deficit of $390 billion, but this projection is based on estimates of economic growth and tax revenues that are out of line with expert forecasts.
Interest payments on the debt will continue to consume ten percent of total federal spending. Almost half of the borrowing for this year and next will be financed by foreign government banks.
The 2006 budget does not include any allowance for the $2 trillion in transition costs that will occur if Bush’s Social Security privatization plan makes it through Congress.
Bush has also changed federal procurement policies. Procurement spending now stands at $275 billion a year, with huge increases in outsourced services from private companies. Private contractors working for the U.S. government now outnumber federal employees by two to one.
Waging Budgetary War on Education, Health and the Poor
Some of the deepest budget cuts for 2006 will hit the Education Department, where federal grants for vocational education, anti-drug efforts and literacy programs will end. The 2006 budget for health and human services is $67.2 billion, down 1.0 percent from 2005. The 2006 budget also slashes spending for housing and urban development by 11.2 percent and cuts funding for food stamps by $1.1 billion. Funding for the Labor Department in 2006 is set at $11.5 billion, down 4.0 percent from 2005.
The most damaging long-term aspects of the 2006 budget are provisions for making the Bush tax cuts permanent, which will guarantee huge ongoing annual deficits, add $10 trillion to the national debt over the next 20 years, and shift more of the tax burden onto workers.
Corporate Taxes Now below 10%: Individual Taxes To Hit 48%
Under the Bush plan, corporate income taxes will represent just 10.1 percent of total federal receipts in 2006, falling to 9.1 percent by 2010, while individual income taxes will contribute 44.4 percent of revenues in 2006, rising to 48.0 percent by 2010. The portion of federal revenues paid by corporations during Bush’s tenure is the lowest ever recorded. As a percentage of GDP, corporate taxes under Bush are at their lowest point since the Great Depression of the 1930s.
The 2006 Bush budget is not a done deal. In March and April, the House and Senate must construct budget resolutions. From May through July, Congressional appropriations committees work on budgets for discretionary programs and additional committees work on funding for mandatory programs. Theoretically, all the budget work must be complete by October 1, but Congress often misses this deadline and passes bills for temporary funding.
Bush and the Republican majority in Congress argue that the domestic spending cuts are necessary to restrain spending, but this claim is a thin guise for the militarization of federal spending and permanent deficits created by tax cuts.
© 2005 Labor Research Association
‘There Is No Trust’: George W., Debts and Taxes
Max B. Sawicky / The American Prospect
(February 11, 2005) — The long-term insolvency of President George W. Bush’s budget strategy is obscured by outrage — otherwise justified — over gratuitous and spiteful spending cuts. These cuts are real enough, but they are the battle the Bush administration would prefer to fight.
To an important extent, the cuts are targeted at politically vulnerable populations. What the administration would prefer we ignore is the longer- term unsustainability of their policies, which also endanger our largest, most important, and popular entitlement programs.
The fundamental problem is that federal revenues now are below 17 percent of the gross domestic product; since 2003, that proportion has been at its lowest since the 1950s. At the same time, total outlays are over 20 percent of GDP. That gap of three percentage points is sufficient to cause federal debt to rise more rapidly than GDP itself, generating a rising debt burden.
Bush Budget Driving Debt
The simple arithmetic: Debt as a share of GDP is now 38 percent. With the Congressional Budget Office’s projection of 4.8 percent growth over the next 10 years, an acceptable sized deficit would be 1.8 percent of GDP (less, if you like a little margin of safety). Three percent or even two percent of GDP is too high, unless you’re staring a recession in the face. For fiscal year 2005, the projected deficit is 3.5 percent of GDP.
How does the Bush budget respond to this gap? It cuts taxes and increases spending. The budget proposes $1.4 trillion in further tax cuts — mostly to extend pre- existing cuts that were made temporary to obscure their long-run cost.
On the outlay side, the non-defense cuts noted above are more than offset by spending increases elsewhere in the budget.
On top of the lurch toward heightened insolvency, the budget fails to report well-known costs of explicit commitments made by the administration — the four largest of which are borrowing to finance the private accounts in the president’s Social Security scheme; the military missions in Iraq and Afghanistan; plans to build a missile defense system; and likely cuts in the alternative minimum tax (AMT).
The latter is a provision of the individual income tax that currently hits about 3 percent of taxpayers but will vastly expand its reach in coming years and undoubtedly provoke sufficient political outrage to cause some kind of adjustment: yet another tax cut. We also have the news this week that the budget fails to include a major, upward adjustment of the costs of the president’s unfunded Medicare prescription drug benefit, now at $1.4 trillion and counting.
When I painted this picture in a phone interview with a Brazilian journalist, she exclaimed in wonderment, “But that’s a farce!” Exactly.
The Social Security Trust Fund
What does this mean for Social Security? The program currently takes in more cash than it needs for today’s benefits. The excess is credited to the Trust Fund, which lends the cash to the federal government to spend on other functions.
According to the trustees for Social Security, cash surplus will begin to dwindle in 2009. At that point, to replace the reduced proceeds of the Trust Fund surplus, the government must raise taxes, cut spending, or borrow more.
Cutting taxes and increasing spending in the face of rapidly rising federal debt is not the way a sane or serious person would prepare to make good on debts to the Trust Fund. But, as with its other policies, the administration proposes to worsen this situation by diverting payroll tax revenue to private accounts. As it happens, they propose to begin in 2009, exacerbating the drag on the rest of the budget.
Enemies of Social Security are trying to characterize the 2009 turn of events as a crisis in the program, even though their privatization remedy would bring it on sooner. To the contrary, the pattern of surpluses in question was engineered in 1983 by the Greenspan Commission, with the blessing of then-President Ronald Reagan.
They did not increase payroll taxes for the purpose of generating “worthless IOUs.” Their goal was 75-year “actuarial balance.” Their calculations proved inadequate, but there is no reason why Social Security beneficiaries should pay for that mistake.
It’s remarkable how the marginal, crackpot idea of defaulting debts to the Trust Fund is edging towards the realm of political possibility.
On February 9, no less a person than President George W. Bush said:
Some in our country think that Social Security is a trust fund — in other words, there’s a pile of money being accumulated. That’s just simply not true. The money — payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust. We’re on the ultimate pay-as- you-go system — what goes in comes out. And so, starting in 2018, what’s going in — what’s coming out is greater than what’s going in. It says we’ve got a problem. And we’d better start dealing with it now. The longer we wait, the harder it is to fix the problem.
This is true, since, the longer we wait, the more the problem worsens with ongoing Bush administration initiatives. Their budget problem is also their policy.
They anticipate it getting worse for good reason. A crisis, notwithstanding his own role in provoking it, is the president’s best argument for shrinking the size of government.
Max B. Sawicky is an economist at the Economic Policy Institute and the principal author of the weblog MaxSpeak, You Listen!.
Copyright © 2005 by The American Prospect, Inc. Max B. Sawicky, “Debt and Taxes”, The American Prospect Online, Feb 11, 2005.
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