OGJ Editorial: The new spending spree

Nov. 18, 2002
Terror attacks, war threats, and midterm elections obscure the return of a problem that the oil and gas industry should urge the next session of Congress to address: excessive spending by the US government.

Terror attacks, war threats, and midterm elections obscure the return of a problem that the oil and gas industry should urge the next session of Congress to address: excessive spending by the US government.

After 5 years of surplus, the federal budget in fiscal 2002, which ended Sept. 30, receded into a deficit estimated by the Congressional Budget Office (CBO) at $159 billion. In a $10.4 trillion economy, that's no great burden. And government outlays have good reasons to have exceeded revenues in the fiscal year just ended, chief among them a bumpy economy and spending related to the fight against terrorism.

The deficit's good reasons, however, don't add up to $159 billion and CBO's projections for further annual shortfalls through fiscal 2005. Congress has gone on a spending spree. It must stop.

Receipts and outlays

According to CBO, government receipts fell by $138 billion in 2002, scoring their largest percentage decline—7%—since 1946. They had increased by an average of 8%/year during 1994-2000 and declined in 2001, which still ended with a surplus of $127 billion. Nearly all the 2002 decline came from a drop in individual income taxes.

Government outlays in 2002 increased by 8%, exceeding $2 trillion for the first time. Without net interest costs, which fell by 17%, the increase was 11%.

Defense spending increased by $41 billion—or 13%—during the year. CBO estimates that more than half that growth was planned before the terrorist attacks of Sept. 11, 2001. The major entitlement programs—Social Security, Medicare, and Medicaid—grew by $55 billion, 7%. Unemployment insurance payments jumped by $23 billion, a 72% gain. All these spending increases were to be expected in an economically rocky year with a war on terrorism under way.

It's in a category called "other programs and activities" that a breakdown of fiscal discipline appears. At $594 billion in 2002, it's the biggest of the major spending categories, exceeding the runner-up, Social Security benefit payments, by $146 billion. The total was up almost 12% from its level of 2001. Why?

"Much of that growth was fueled by significant increases in nondefense discretionary appropriations, which have increased by an average of 15%/year over the past 2 years," CBO says. Congress is reverting to the spending habits that created the chronic deficits of the 1980s.

In testimony to the House Budget Committee on Sept. 12, Federal Reserve Chairman Alan Greenspan warned lawmakers about the relapse.

"Without clear direction and constructive goals," he said, "the inbuilt political bias in favor of budget deficits likely will again become en- trenched." He cited the Budget Enforcement Act of 1990 as an important weapon in the fight against the earlier round of deficits. The law set caps on nondefense discretionary spending and required that new mandatory spending be offset by cuts elsewhere in the budget.

"The budget rules worked far better than many skeptics, myself included, had expected," Green- span said. "Between 1990 and 1998, discretionary spending fell from more than 10% of (gross domestic product) to less than 6.5%."

Lawmakers, however, found ways to dodge the rules. And during those years of surplus other concerns eclipsed fiscal policy as political issues. Bills extending the budget rules, which needed reauthorization by Sept. 30, are lost in congressional committees.

Congress needs the forced discipline of statutory spending limits and pay-as-you-go rules, cumbersome though they can be. Without that kind of structure, lawmakers heedlessly throw public money at favored constituencies for political gain. The huge farm bill passed this year shows how much attention the budget gets when an election looms and politicians have other people's money close by.

Fiscal discipline

Lawmakers won't return easily to fiscal righteousness. Democrats unsoundly blame the deficit on tax cuts urged into effect by President George W. Bush. Republicans think they lost political ground while Bill Clinton was president by focusing too much on balancing the budget and not enough on economic growth.

Both views are simplistic if not wrong. Neither of them is an excuse for the government to squander public money.

Congress needs a new dose of fiscal discipline. Reauthorizing the Budget Enforcement Act would be a nice start. Complying with it would be even better.