Office of Management and Budget Click to print this document
We Can Cut the Deficit in Half

December 10, 2003
Wall Street Journal


President Bush has resolutely pursued three top priorities: winning the war on terror, protecting the homeland and strengthening the economy. While rarely challenging these goals, some commentators now suggest that, in their pursuit, the administration has unwisely neglected deficit reduction and fiscal discipline. From the left, the president's tax cuts are blamed for driving the federal budget into deficit. From the right, the president is criticized for acquiescing in a Congressional domestic spending spree. Neither charge stands up to scrutiny.

First, to trace the roots of today's deficits, recall the circumstances the country faced in the early months of this administration: President Bush took office with a stock market in collapse and an economy entering recession; he was soon to confront as well the revelation of corporate scandals and, of course, terrorism on American soil. The resulting economic "perfect storm," which dramatically drove down Treasury receipts, is by far the largest reason we face budget deficits today. Had there not been one dime of tax relief under President Bush, the federal budget would still have run a substantial deficit in 2003.

In fact, the president's tax cuts have been critical to his priority of strengthening the economy and creating jobs. Perhaps the best timed in American history, these tax cuts deserve much credit for today's brightening economic picture: the highest quarterly growth in 20 years (8.2%), which, though unlikely to remain as high, is a harbinger of sustained growth to come; extraordinary productivity growth; continued strength in housing starts and retail sales; and encouraging signs of renewed business investment. These indicators suggest that job growth, which typically lags recovery, should continue to strengthen in the months ahead. And sustained growth will be good news for our budget picture as well: As the economy improves, Treasury revenues will too -- and budget deficits, now projected to peak in this fiscal year, will decline.

Second, as to the president's spending policies, what the record shows is a commitment to national security -- and restraint elsewhere. Most critics of the president's fiscal record begin by saying they support the additional spending that has been necessary to respond to 9/11 and the global war on terror, but they then proceed to complain about spending levels that are largely made up of those costs. It is true that discretionary spending (the spending over which the president and Congress have control through annual appropriations) has risen substantially in the three most recent budget years. But more than three-quarters of that increase has been directly related to our response to 9/11, enhanced homeland security and the global war on terror.

The increases in all other discretionary accounts have been modest by historical standards. In the last budget year of the previous administration (FY '01), domestic spending unrelated to defense or homeland security grew by an eye-popping 15%. With the adoption of President Bush's first budget (FY '02), that number was reduced to 6%; then 5% the following year; and now 3% for the current fiscal year. There is room for more restraint, especially as the economy recovers, but this is hardly the record of a domestic-program spending spree.

To those who lament that the president hasn't vetoed a single spending bill, the response is simple: He hasn't needed to. Recently concluded negotiations on the latest appropriations bills, for example, reflect effective presidential and congressional leadership. The president asked for, and the House has passed, a total increase in discretionary budget authority no larger than the growth in family income this year: 4%.

As in previous years, commentators of all stripes will doubtless find plenty to criticize in the latest appropriations spending priorities and policies. But a complaint that domestic spending has run amok in this year's appropriations bills is not supported by the numbers, which bear repeating: 3% growth in non-national-security related spending authority, and 4% growth in overall discretionary spending authority.

None of this is to suggest that our fiscal situation should not remain a matter of concern. With major expenditures in Iraq, and Treasury receipts only beginning to reflect a recovering economy, we still face a deficit in the $500 billion range for the current fiscal year -- larger than anyone wants. But that size deficit, at roughly 4.5% of GDP (compared with a modern peak of 6% during the Reagan years), is not historically out of range; and it is entirely manageable, if we continue the president's strong pro-growth economic policies and sound fiscal restraint. Indeed, with adoption of the president's policies, our projections show a solid path toward cutting the deficit in half, toward a size that is below 2% of GDP, within the next five years.

With renewed economic growth and Congress' cooperation in focusing spending on our most critical priorities, we can accomplish the great goals the president has set for the country, while dramatically improving our budget situation.

Mr. Bolten is the director of the Office of Management and Budget.

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