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IV. An Unprecedented Moment in History

   Government does not create wealth. The entrepreneurial spirit of hard-working Americans creates wealth. But Government can help create an environment in which that spirit flourishes—an environment that promotes innovation, risk-taking, and equal opportunity.

Governor George W. Bush
Renewing America's Purpose

The success of America's economy is a tribute to the creativity and risk-taking nature of its citizens. More than any other place on earth, its political and economic system gives free rein to the human zeal to create and build—and this freedom shapes who Americans are, no matter where they come from.

However, the greatest economic successes have occurred when the U.S. Government helped to create an environment in which entrepreneurial activity could flourish. There are notable examples of such successes. The reduction in tax and regulatory burdens in the late 1970s/early 1980s, the adoption of sound monetary policies, and enhanced trade helped to unleash the 1980s economic boom, while recent fiscal restraint and the ending of the Cold War were important catalysts behind the recent rise in productivity growth.

These successes are particularly noteworthy when placed in historical context. The last 17 years have included the two longest peacetime expansions in history, separated by one of the shallowest recessions. Over this period, the United States was in recession less than four percent of the time. This compares to the century and a quarter before 1982, when the U.S. economy languished in recession 35 percent of the time.

Recent Softening of the Economy

The advances made over the last two decades provide a solid foundation for further growth going forward, assuming the Nation continues to pursue growth-enhancing policies. However, even though the long-term picture looks bright, there are troubling signs in the near-term. The U.S. economy slowed noticeably, and suddenly, in the last quarter of 2000. Recent economic reports show unemployment rising, while growth in real disposable income is the slowest since 1996. The Federal Reserve has indicated its concern with two rapid-fire cuts in interest rates in January.

The President's proposed economic plan complements recent monetary action. His tax relief program acts as a near-term insurance policy against an unwanted deepening of the current slowdown and should help growth return more quickly to a robust pace. Tax relief will also help to boost the economy's underlying rate of long-term growth, particularly when coupled with the President's initiatives to enhance human capital and take action to ensure a brighter fiscal and national security outlook.

The President's Plan

While there are many needs and challenges facing the Nation, several stand out: the need to retire the Federal debt; provide tax relief; revitalize education; reform and modernize Social Security and Medicare; bring defense strategy and spending in line with the challenges of the next half-century; and support of community outreach efforts. The advent of large near-term projected surpluses provides a unique chance to address these needs. The President's plan takes advantage of this great opportunity, laying out a clear agenda for meeting these needs.

  • The President's Budget commits to using today's surpluses to reduce the Federal Government's publicly held debt so that future generations are not shackled with the responsibility of paying for the current generation's overspending. It commits to an historic amount of debt retirement and will retire $2 trillion in debt over the next 10 years. This is all the debt that can be retired without using taxpayer dollars to make bonus payments to investors in order to induce them to give up their bonds.

  • The President's Budget proposes a bold and fair tax relief plan that will reduce the inequities of the current tax code and help ensure that America remains prosperous.This tax relief plan promotes the values that make the American economy second to none—access to the middle class, family, equal opportunity, and the entrepreneurial spirit. This plan will reduce taxes for everyone who pays income taxes, and it will encourage enterprise by lowering marginal tax rates. It will also ensure that higher income earners pay a larger share of taxes than they do now.

  • The Administration believes that every young American should have the opportunity to go to a good school and acquire the skills that will be needed to advance in today's high technology society. Today, America's public schools serve some children well. But some schools clearly do not teach adequately, nurture consistently, or offer a fair start in life. Members of both parties and both Houses of Congress agree that Federal education dollars should be spent in ways that restore local control; encourage States to set high standards; hold schools accountable for improving student achievement, including by measuring achievement through frequent testing; aid in improving the quality of classroom instruction and school safety; and where a school persistently fails, assist parents in finding better options. Some education initiatives in this budget originated on one side of the political aisle, some on the other. All stress results over promises and accountability over process. Federal spending is a small part of America's total education spending. The President's Budget declares that we must not spend for spending's sake. This budget puts together an education program and budget that ensures that "no child is left behind."

  • The President is committed to shoring up Social Security's finances so that this program can continue to provide retirement security for all future retirees. Today the Social Security program is in surplus. Beginning around 2015, beyond the Government's 10-year planning horizon, the program will begin to run a cash deficit. By 2037, the trust fund will be depleted and payroll taxes at that time will cover only 72 percent of promised benefits. Returns have declined to such a point that future retirees would do two or three times better if they invested their Social Security taxes in low risk securities. Unless Social Security is reformed, many young people of the following generation—Generation X—might not get back from Social Security what they put in. Social Security could be a losing proposition for them. Reform must make Social Security a sound program for tomorrow's retirees. The cost of saving Social Security goes up with every passing year, and our ability to improve returns on total contributions goes down. This moment will pass. With this budget, the Administration commits itself to working with both parties and both Houses of Congress in fixing Social Security now.

  • The President is committed to shoring up Medicare's finances as well, while providing better, more efficient coverage for our seniors. Medicare is already spending more than it takes in. Medicare spending already exceeds taxes and premiums by $66 billion this year. That will grow to $132 billion in 2011. The antiquated division of the program into hospital and non-hospital pieces does not encourage efficient medical care. Medicare has not adapted to 21st Century medicine. Medicare is often slow to incorporate new technologies and methods of delivering health care. In addition, although medical care increasingly relies on pharmaceuticals, it lacks prescription drug coverage. As in virtually all fields, technological and entrepreneurial innovation are among the keys to creating more value for the dollar in health care. Reform that works for patients must make room for such innovation. Reform should expand patients' choices—not restrict them. This budget initiates the process of Medicare modernization and delivers immediate relief on prescription drugs for our neediest seniors.

  • The Administration is committed to enhancing our national security. Today our Nation faces no major foreign adversary. Our military is unquestionably the strongest on earth. And yet our forces are deployed around the world maintaining peace and keeping a watchful eye on our national interests with increasing frequency. These deployments have created some stress on our military. To boost the morale of these dedicated men and women, the President's Budget will, in addition to the well-deserved pay raises earned each year, include an additional $1.4 billion to ensure better compensation for our troops.

Furthermore, we must develop a strategic vision for the 21st Century national security agenda that will inform research, development, and procurement decisions for the next generation of defense systems. This budget begins the process of force re-examination. And it commits America to developing, designing, and building a national missile defense as fast as possible. Starting now.

  • The President's plan supports community efforts to serve their fellow citizens. Today, Federal funds are denied to many faith-based and other community-based programs that have succeeded in helping people curb criminal behavior, conquer addiction, strengthen families, and overcome poverty.

Federal policy should become outcome-based, insisting on success and steering resources to the effective and to the inspired. We must heed the growing consensus across America that successful Government programs can work in fruitful partnership with community-serving and faith-based organizations, whether run by Methodists, Muslims, Mormons, or good people of no faith at all. We must observe the bedrock principles of pluralism, nondiscrimination, evenhandedness, and neutrality. With this budget, private and charitable groups, including religious ones, will have the fullest opportunity permitted by law to compete on a level playing field for Federal funds, so long as they achieve valid public purposes. With this budget, the Federal Government lines up with these armies of compassion.

Moderate the Growth in Spending and Restore Budget Integrity

However, in order to ensure that Government resources are directed to the main challenges facing our Nation, we must ensure that we rein in excessive Government spending.

The arrival of budget surpluses in 1998 has led to an explosion in Federal Government spending. For the past three years, spending has exceeded the statutory limits that Congress and President Clinton wrote into law in 1997 by $199 billion. During this period, appropriated spending has grown by an average of six percent. While some may assert that these spending caps are unrealistic, they have only become unrealistic due to the spending spree, particularly in domestic programs, that has occurred over the past three years. If growth continued at a six percent pace going forward, an additional $1.4 trillion of the surplus would be consumed over 10 years—approximately the amount of the President's tax cut. (See Chart IV-1.) History has shown that—unlike tax cuts—spending increases, once made, are rarely reversed. This pattern cannot long continue without jeopardizing our Nation's long-term goals. Discretionary spending growth should be held to the inflation rate. This will mean redeploying resources away from programs that have achieved their goals or failed. It will also mean exercising restraint both in the Administration and in Congress.

IV–1. Impact of Unconstrained Growth

We must also reshape the way that we conduct the Nation's fiscal affairs. The annual budget process increasingly has become a spectacle of missed deadlines, legislative pile-ups, cliffhanger finishes, and ill-considered last minute decisions. Gimmicks abound for disguising spending as an "emergency" or advancing the spending into the next year to avoid limits. Congressionally adopted overall spending limits have become hurdles to be cleared, not ceilings to be honored.

In addition to higher spending, budget surpluses have led to a dramatic increase in congressional earmarks. The result is that the Government is not only producing more spending, but more unjustified spending. During this past year, the explosion in spending was accompanied by an unprecedented 6,000 plus earmarks in appropriations bills.

A budget is not just about numbers. Far more it is about priorities—and integrity. One great test is whether a budget legitimately supports the initiatives it purports to advance. A budget not only says a lot about how much we will spend, but it will inevitably reveal how we do the people's business. In other words, it is time to restore accountability and responsibility to Federal budget making.

The President proposes to:

  • End accounting sleights of hand;

  • Eliminate unjustified, special-interest spending;

  • Make the budget resolution a law that Congress and the President must live by;

  • Extend the enforceable limits on spending that will soon expire;

  • Prevent future Government shutdowns;

  • Move to biennial budgeting and appropriations process; and

  • Restore accountability and responsibility to Federal budget making.

The Challenges

Both parties in Congress and the Administration share a common purpose. All of us want America's children to receive an excellent and enriching education. All of us want to pay down the national debt. All of us want to save Social Security and modernize Medicare. All of us want to strengthen America's national security. All of us want to return a portion of the surplus to the American taxpayers.

A limited Government that does its job well and that trusts the rest to the energy, ingenuity, and decency of a free and creative people: this has been the American concept of Government for more than two centuries.

The agenda in this budget is not that of one party or one branch of Government but of the Nation. We live in an era of common purpose. More than ever Jefferson's reminder is true today—that among Americans every difference of opinion is not a difference of principle. We may—and should—debate how most effectively to pursue our goals, but we are agreed on which goals we will pursue. We may—and should—debate how to best get results, but we agree on the results that we want to achieve.

We can strengthen America's economy. We can reach out to communities and make our programs of compassion more effective. We can reduce the burden of Government on every American even as we revive the effectiveness of its service to all Americans. We can do the people's work with candor, in the open, and on time. These are the challenges before us.

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