'Ratchet Effect' May Lead to More Federal Spending Profligacy

'Ratchet Effect' May Lead to More Federal Spending Profligacy
April 1, 2005

Stephen Slivinski

Stephen Slivinski is senior economist at the Goldwater Institute in Phoenix, Arizona. (read full bio)

There are a few things for taxpayers to cheer about in President George W. Bush's new budget proposal, but it also includes plenty of evidence that the death of budget profligacy in Washington has been greatly exaggerated.

The new Bush budget proposes an overall 3.6 percent increase in federal spending for 2006.

The president proposes to end the recent growth in discretionary spending, which is composed of spending other than entitlement programs such as Medicare and Social Security. The proposed budget makes cuts of just under 1 percent in this category.

Under his watch, that portion of the budget has grown by 48.5 percent. During his first term, Bush submitted guns and butter budgets that did not reprioritize federal spending: Large increases in defense budgets to fight the wars in Afghanistan and Iraq and to fund homeland security programs were accompanied by large increases in the non-defense budget.

Paltry Cuts

The proposed cuts, however, are somewhat paltry. They do target some high-profile programs, such as a proposed elimination of Amtrak subsidies, cuts to housing programs, and the termination of some corporate welfare such as the Advanced Technology Program. But these do not substantially affect the massive budget buildup the White House and Congress engaged in during the past four years.

The only Cabinet-level agencies that have smaller proposed budgets for the coming year than when Bush took office are the Departments of Labor and Transportation and the Environmental Protection Agency. All the rest have grown dramatically.

The new Bush budget proposes, for example, that the Department of Education budget will be 40 percent bigger than it was in 2001, and that the Department of Commerce will be 85 percent bigger.

Large Increases

The savings from the program cuts are dwarfed by an increase in spending in other programs that weren't touched. In the first few pages of the budget document, the president outlines 37 new or expanded initiatives on which to spend taxpayer money.

As a result, the president may have started the budget bidding too high. Once Congress gets its hands on the budget, all proposed cuts typically go out the window, and the president's proposals are usually seen as spending floors, not ceilings. Congress usually starts ratcheting up the spending almost from the minute the president's budget reaches Capitol Hill.

Over the past four years, for example, Congress appropriated $187 billion more than Bush proposed in defense and domestic spending. By refusing to veto a single bill in his first term, Bush did nothing to stop this budget ratchet.

Higher Hill to Climb

After failing to battle the budget ratchet in his first term, the president is going to have to push even harder to keep his spending cuts intact now. The only way this will work is if he threatens to veto any budget bill more expensive than what he proposed.

Bush's threat to veto the federal highway bill last year if the price tag were larger than his proposal led to substantial bickering among Republicans in the House and Senate over what spending level would trigger a Bush veto. This killed the prospects of passing that bill by the end of the year. Similar wielding of the veto threat could help scale back the ratchet effect the president encouraged during his first term.

Republicans have a stronger level of control over both houses of Congress than in Bush's first term, and they have a re-elected and confident president. That means they have run out of excuses as to why they haven't controlled spending.


Stephen Slivinski (sslivinski@cato.org) is director of budget studies at the Cato Institute. A version of this article appeared in the Washington Times on February 9, 2005. Reprinted by permission.

Stephen Slivinski

Stephen Slivinski is senior economist at the Goldwater Institute in Phoenix, Arizona. (read full bio)