Bush's Game of Fiscal "Chicken"

Drive straight for a head-on collision and let liberals get out of the way.

| Fri Dec. 23, 2005 3:00 AM EST

Article created by The Century Foundation.

The year is ending with an honest touch. After the administration failed to get Congress to cut future Social Security benefits (in the guise of reforming the system), and after it chose to ignore the recommendations of its tax reform panel, the legislative year is ending with a flurry of tax and spending cuts which aim at, well, cutting taxes and spending.

In the end, that is what this government has come to stand for: cutting taxes and non-military spending while waging war. The spending binge since 2001 is winding down. Military spending will level off, perhaps even decline. Legislators from Utah to Alaska are sated with pork (although they slipped a provision to permit oil drilling in wilderness areas into the defense appropriation bill). And the president has no more elections to win. So the administration can turn to its long term vision: to starve government of revenues and thereby force it to shrink.

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In a show of indifference not only to the distributional consequences of its fiscal policy but to the laws of arithmetic, the government continues to thumb its nose at fiscal orthodoxy.

The move is deliberate. Most citizens do not follow number crunching anyway. The damaging consequences of throwing the budget wildly out of balance may not come home to roost for years. By then, The President and Vice President, Mr. DeLay and the other architects of our fiscal mess will be long gone, stone-walling any responsibility.

It took ten years of tough policy to move the federal budget from the deficits of the Reagan-Bush I years to the surpluses of the late 1990s. The Clinton administration cut federal spending as a share of GDP by 3.7 percentage points while increasing revenues as a share of GDP by 3.3 percentage points, for a net effect on the deficit of 7 percent of GDP. All those effort to restrain spending and raise revenues have been torn up and tossed aside as the Bush administration has added to spending while eviscerating revenues: so far, the Bush administration has raised the share of spending in GDP by 2 percent while slashing taxes by 4.1 percent. The ten-year-long uphill struggle to set the federal fiscal house in order has been undone in less than half that time.

The tax and spending cuts of December 2005 are entirely consistent with the politics of fiscal “chicken” that the administration is playing: drive straight for a head-on collision and let liberals get out of the way.

The spending cuts in the reconciliation bill will hit Medicaid and other health benefits, child care, student loans, and Food Stamps. The total effect of the spending cuts over five years is expected to be $42 billion. Against this, the tax cuts nearing final approval are expected to cost $90 billion over five years, principally by offering tax relief on dividends and capital gains.

For the budget, the policy continues to be cut and run. As for the poor, the policy seems to be to let them eat cake.