clock menu more-arrow no yes

Filed under:

Federal spending surges

Projected $401 billion '03 deficit could soar to $480 billion in '04

WASHINGTON — In the Washington blame game over who's responsible for ever-worsening federal deficit projections, Republicans and Democrats offer predictably different explanations. Republicans say a lousy economy is largely at fault; Democrats point the finger at President Bush's tax cuts.

But neither side talks much about a third factor that's just as important as the other two: Federal spending once again is going through the roof.

After a decade in which penny-pinching by both parties limited spending increases to about 3 percent a year, federal outlays are again heading upward quickly.

In the past four years, annual spending increases have shot up an average 6 percent, double the rate of inflation.

Last year, the federal budget grew by 7.9 percent, highest in a dozen years, and the Bush administration is projecting even higher increases this year, with spending nearing $2.2 trillion.

"The political consensus for restraining spending is just gone," said Robert Bixby, executive director of the budget watchdog Concord Coalition.

The surge in federal spending is tied largely to the government's ramped-up military and homeland security fight against terrorism. But it's hardly the only factor. In the past two years, for example, Medicaid spending has shot up 26 percent while Medicare costs have gone up 17 percent.

In some respects, the spending story is worse than it appears because lower interest rates have counterbalanced some of the growth. Last year, for example, government costs would have grown nearly 10 percent but for a $35 billion drop in interest payments.

The upshot is that Bush and Congress have set an aggressive spending course that is significantly deepening the government's swing toward annual deficits. The Congressional Budget Office last week projected a record $401 billion deficit this year, and warned that the red ink could reach $480 billion in 2004.

Less than three years ago, the budget office had projected a decade-long era of surpluses that, cumulatively, would exceed $5 trillion.

Many budget-watchers say that even the newly stark projections are too rosy.

A report by the Center on Budget and Policy Priorities said that if Congress approves a prescription-drug benefit for seniors and extends current tax policies, as most observers expect, annual deficits could reach $650 billion by 2013.

"Running deficits of this magnitude after the economy recovers," said Robert Greenstein, the group's executive director, "is a prescription for severe fiscal distress in the decades ahead."

Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee, said the unfavorable budget trends are occurring at precisely the wrong time. "At a time when the nation should be saving for the retirement of the baby boomers," he said, "budget policies are saddling us with long-term debt."

The Bush administration defends its spending policies as both economically prudent and necessary to defend the country against the threat of terrorism. While lamenting resulting deficits, officials say, the combination of tax cuts and growing spending have helped to limit damage from the recession.

In some respects, the federal government's core growth has been masked for a full decade. Throughout most of the 1990s, military spending was on a steady decline, reflecting the peace dividend that came with the end of the Cold War. Then, with the unexpected arrival of annual surpluses, interest expense began to fall. With lower rates accelerating the trend, interest costs this year are down nearly $100 billion from the peak year of 1998.

Budget forecasters say neither trend is likely to continue over the next 10 years.

The federal government's new spending binge runs counter to the painful experience of the 50 states, nearly all of which have slashed budgets drastically in the past three years in the face of sharp revenue declines.

What's different about the states' situations is that they are bound by constitutions to operate with balanced budgets. Congress and the president have no such limitation.

Bixby of the Concord Coalition says only political will can prevent federal deficits from ballooning. And that quality, he says, is sorely lacking in Washington right now.

"There really is no plan by anyone to deal with this," he said. "This is quite clearly a gamble. The White House is gambling that something will happen — some boom that will take care of this problem."