In looking at this President’s budget, it appears that he is trying to be all things to all people. If we are to believe the President, there can be large increases for defense, smaller increases for homeland security spending, and the creation of new, large tax breaks for the nation’s wealthiest, including the acceleration and making permanent of previously enacted large income tax breaks – as well as a rational restraining of most other federal spending to contain the large deficits predicted for FY 2004 and beyond. However, the reality is that the large tax cuts already passed, coupled with the large tax cuts now proposed and the spending increases in defense and homeland security, will put added pressure to reduce long-term spending on domestic discretionary and entitlement programs – or cause the deficit to balloon.

In looking at this President’s budget, it appears that he is trying to be all things to all people. If we are to believe the President, there can be large increases for defense, smaller increases for homeland security spending, and the creation of new, large tax breaks for the nation’s wealthiest, including the acceleration and making permanent of previously enacted large income tax breaks – as well as a rational restraining of most other federal spending to contain the large deficits predicted for FY 2004 and beyond. However, the reality is that the large tax cuts already passed, coupled with the large tax cuts now proposed and the spending increases in defense and homeland security, will put added pressure to reduce long-term spending on domestic discretionary and entitlement programs – or cause the deficit to balloon.

In a quintessentially Washington way, the President’s FY 2004 federal budget proposal arrived today, even as Congress continued to grapple with the FY 2003 federal budget (nearly halfway through FY 2003).

The president’s budget proposal is just a starting point for the coming fiscal year’s budget debates. The numbers in his budget should always be taken with a healthy dose of salt, as the real budget numbers won’t be worked out by Congress for many more months. This year, the numbers are even more cursory, for, as a result of the slowed appropriations process, the President is comparing them, in most cases, against those he proposed last year for FY 2003 – and his budget doesn’t even include all anticipated spending for the coming year: his large increase for defense spending doesn’t reflect the huge costs of a war with Iraq (such funds would likely come through a supplemental spending request later this year).

Nevertheless, the President’s budget, like the federal budget that will ultimately be passed by Congress, is a statement of priorities, of the President’s commitment to various programs and initiatives, of a plan for balancing the nation’s many needs. As such, if one can try to read past the rhetoric, it can be a useful, if only initial, look at what the President values and what he is prepared to advocate for in the coming year.

In looking at this President’s budget, it appears that he is trying to be all things to all people. If we are to believe the President, there can be large increases for defense, smaller increases for homeland security spending, and the creation of new, large tax breaks for the nation’s wealthiest, including the acceleration and making permanent of previously enacted large income tax breaks – as well as a rational restraining of most other federal spending to contain the large deficits predicted for FY 2004 and beyond. However, the reality is that the large tax cuts already passed, coupled with the large tax cuts now proposed and the spending increases in defense and homeland security, will put added pressure to reduce long-term spending on domestic discretionary and entitlement programs – or cause the deficit to balloon.

This represents the wrong priorities for the country. It is irresponsible and potentially dangerous. The President’s budget intentionally presents a short-term snapshot of the budget so that the public does not see the huge impact of the tax cuts. For example, the budget calls for repeal of the estate tax, our most progressive tax in that it taxes the wealthiest 1 percent of families, yet only shows a modest cost of repeal to the government. In reality, the repeal will cost at least $50 billion each year starting in 2011 and go up from there. These explosive tax cut costs will come at a time when the current President is no longer in office and the baby boomers will be relying more and more on Social Security, Medicare, and other government services. This will create a national crisis and must be considered now.

The Deficit
The President’s Office of Management and Budget (OMB) predicts a $307 billion budget deficit for the coming fiscal year. There is much discussion about the growing deficits, who or what is responsible for them, and what they mean for the country’s fiscal future. What has been lost in this debate, however, is any consideration of the current impact the political force of these deficits has. Specifically, while the President tries to play down the relative size of this and the coming year’s deficits, by (appropriately) putting them in context of the country’s total economy, he also argues for painful cuts in much of the country’s domestic programs to restrain the growth of these deficits. At the same time, however, he himself continues to press for huge tax cuts tilted to those pulling in more than $300,000 each year. Congress is left to decide what must go – the tax cuts, an effort to limit the deficit, or an ability to meet vital domestic needs.

The President is correct in his assessment of the size of the current deficit as “moderate,” but in arguing for tax breaks for the wealthiest, while pushing for restraint in the growth of “any spending not directly associated with the physical security of the nation,” he appears both disingenuous and short-sighted. The fiscal conservatives out there must question the sincerity of his commitment to restrain nonessential spending given his own emphasis on a $674 billion tax break plan that eliminates dividend taxes and a $56 billion annual investment to make repeal of the estate tax permanent. Don’t let the White House’s discussion of possible economic growth fool you, for each of these tax cuts is government spending – and none of them is essential to the physical well-being of this nation. Nevertheless, while counting costly tax giveaways as essential to the security of our borders, the President also argues that allocating the additional funding necessary to meet the needs among families for health care, educational assistance and housing – all of which have only increased over the last year, as the economy’s growth has been slow – is not essential to the overall security of the country.

Placing unrealistic spending limits on Congress is bad enough, but an inconsistent enforcement of these spending limits in his own administration when it comes to doling out costly tax giveaways for the smallest number of people is egregious.

What Four Percent Really Means
To show that the President is doing his part to help make these tough decisions and working towards reducing the federal budget deficit, this year’s budget documents credit the President with a new, so-called “common sense yardstick” developed to limit new federal spending – the average American family’s own annual budget increase. As the President explained in his State of the Union address and again in his proposed budget, “at a time of both economic and fiscal difficulty, the government’s budget ought not grow faster than that of the American family.” According to OMB, this means limiting total federal discretionary spending growth to about 4 percent. There are many problems with this “common sense yardstick,” not least of which is a question of whether it makes any sense at all. Most would argue that at a time of “economic and fiscal difficulty,” the federal government should be relied upon to step in and compensate for over-strained family budgets by increasing, not severely restraining, spending in areas that reach these struggling families.

But even if one puts aside the question of the practicality of this yardstick, a very real problem with the 4 percent limit on federal spending growth remains, namely that this 4 percent figure is an average that masks large, damaging cuts in a whole host of domestic programs. Since the 4 percent increase in discretionary spending reflects total growth in all programs, it obscures the fact that large increases in defense and smaller increases for homeland security spending and resources for Veterans Affairs, and a much needed increase in funding to provide treatment for AIDS patients across the world add up to very small increases for many programs and actual cuts for still more programs. For example, while Bush proposes that defense spending receive an increase of 15.3 billion^* (4.2 percent) over the FY 2003 funding level, all Homeland Security funding would be increased by only 1.3 billion^* (5 percent) over his proposed funding level for last year. Health and Human Services would receive only 1.6 billion^* (3 percent) more than proposed for last year, while the Department of Housing and Urban Development would receive a mere 1 percent increase, the Environmental Protection Agency would receive no real increase, and the Departments of Justice and Labor would receive cuts of 3 and 1 percents^**, respectively.

The effects of these averages are put into real terms for education in a report issued by the Minority Staff for the House Appropriations Committee. According to the report, Bush’s much touted $22.7 billion proposed this year for the “No Child Left Behind Act” reflects a paltry 1.9 percent increase and is actually more than $600 million below the level needed to compensate for inflation. Even more startling, the President’s proposed funding level for FY 2004 is $9.7 billion below the amount authorized for the coming year by the Act itself.

Hidden Costs
A final complication in assessing the full impact of the President’s proposal is OMB’s recent decision to return to a standard of using 5-year projections, instead of the 10-year projections used for the last 7 years. As the Washington Post pointed out, reliance on a more realistic time frame for budget proposals is to be lauded, but this condensed time frame seems to serve mostly to help the President obscure the full costs of expensive and controversial proposals including permanent repeal of the estate tax. (Full repeal of the estate tax, enacted in June of 2001, does not take effect until 2010. Since the President’s 5-year budget window closes in 2008, the real costs of this repeal is hidden in this year’s budget.) This obfuscation of the true costs of the President’s own proposals is irresponsible and misleading.

The Budget of the United States is the proof of our priorities, and an expression of our values. When our leaders advocate cuts in health assistance for the poor, an underfunding of our children’s education, and minimal increases in spending for our domestic security to make room for tax breaks for those who need our assistance the least, it becomes clear that their values are far removed from our own. In future days, OMB Watch will release additional analyses that examine this disconnect in more detail. Check www.ombwatch.org for more information.

^*These values were incorrectly labeled as percentages in an earlier version of this analysis. We apologize for the mistake.

^**These values were incorrectly reported in an earlier version of this analysis. We apologize for the mistake.