Size Matters

From IBD:

Posted 2/6/2006
Budget: "Downsizing" and "right sizing" have been all the rage in corporate America, helping to create a leaner, meaner economy. Maybe it's time for those ideas to reach the government, too.

The spending plan that President Bush has just unveiled does a lot of good things — preserving the tax cuts, for example, and trimming growth in Medicare, changing how we spend defense dollars, cutting nondefense discretionary spending by 0.5% and expanding Health Savings Accounts, an innovation that may have enormous impact down the road.

And we can't argue with the underlying philosophy as stated in the budget release: "(T)he American economy grows when people are allowed to keep more of what they earn, to save and spend as they see fit," the president said in his budget release.

We're also glad to see overall spending will rise just 2% in 2007, to $2.77 trillion. We only wish more were being done to keep the growth in government in check.

Take the $2.77 trillion. It will likely be even higher than forecast, and by quite a bit. The reason: Bush still must ask for an additional $50 billion for Iraq, maybe more. And he'll have to find a way to fund alternative minimum tax relief for middle class families.

It is true the White House proposes to cut or end 141 programs, which sounds like a lot. But that will save only about $14 billion. In a budget nearing $2.8 trillion, that's nothing.

Compare that with the 1995 budget, crafted at the peak of the Republican Revolution. That budget, says the Cato Institute's Stephen Slivinski, cut or killed nearly 300 programs and saved $40 billion. And that, along with shrinking defense spending after the Cold War and a surge in New Economy tax receipts, helped push the budget into surplus for the first time in decades.

As for Medicare "cuts" that have set special interest groups and Democrats squawking, they're not really that big. Under the budget, Medicare will save $36 billion — but its yearly growth will only fall from 8.1% a year to 7.7%. It's still growing roughly twice as fast as the overall economy — too fast, in our opinion.

It's also true the budget deficit is forecast to shrink from $439 billion in 2006 to $354 billion next year — or from 3.2% of GDP to 2.6%. Good news, we suppose. But, as John Berthoud of the National Taxpayers Union notes, if spending growth had been held to 4% since 2001, we'd have a $58 billion surplus in '07.

Yes, when it comes to the budget, size matters. The $2.77 trillion spent represents 20.1% of GDP. That's neither historically high nor low (the average since 1970 is 20.7%). But by recent standards it marks a big change. Just six years ago, government spending represented just 18.4% of U.S. output.

What's more, that 20.1% doesn't include certain things — like Katrina and the war in Iraq — where spending is still uncertain. So spending's share of the economy could rise further.

We give Bush a lot of credit. After years of big spending gains, he's offered a sensible, but hardly revolutionary, budget. When we see headlines like this one from Reuters — "Bush Aims to Tame Deficits with Domestic Cuts" — we know something must be right.

It's time to follow corporate America's lead and "downsize" government. Bush has taken a stab at it. But he's still spending way too much. And chances that his plan will get through Congress without being larded with treats for lobbyists and special interests are virtually nil.

We only wish Bush had wielded his veto pen once or twice in the past. Then, Congress would know he means it when he says he wants a smaller government, and it might just give it to him.