The Wall Street Journal
December 21, 2004
PAGE ONE
Sharpening the Knife
As Bush Vows to Halve Deficit, Targets Already Feel Squeezed
Less Budget Funding for Aid, Education, Cities, Science; Bracing for the Boomers
Republican Governors Resist
By JACKIE CALMES
Staff Reporter of THE WALL STREET JOURNAL
December 21, 2004; Page A1
WASHINGTON -- In his first term, President Bush's domestic policy focused on creating winners, through tax cuts, a new prescription-drug-benefits plan for seniors, large farm subsidies, big homeland-security contracts and increased spending for education, scientific research and more. Now, with worries about the size of the deficit widespread, get ready for a second Bush term about identifying losers.
(snip)
With guns -- or military spending -- growing, the butter is likely to include some of the most visible areas of domestic spending, including the Medicaid health program, subsidies to Amtrak, agricultural research and even some federal education programs. In the just-finished fiscal 2005 budget, which came in 10 weeks late, big cities received less federal aid to comply with anti-pollution laws and job training requirements. The National Science Foundation, which underwrites the country's basic research saw its funding cut from 2004 levels. Funding for the National Aeronautics and Space Administration came in below Mr. Bush's request, despite House Majority Leader Tom DeLay delaying a vote to get more money for the space program, which has major installations in his district. Even spending on the president's own initiatives for education, health research and the promotion of economic and political change overseas were cut to levels below his requests or last year's spending. A similar fate befell Laura Bush's program to sponsor cultural events in local communities.
(snip)
California's Arnold Schwarzenegger, Jeb Bush in Florida and George Pataki in New York, among others, will likely resist attempts to shift the funding of major programs, such as Medicaid, to the states. Of the 38 governorships up for grabs in 2006, 22 are now held by Republicans. "All the Republican governors were pretty reserved because they wanted Bush to get re-elected," says former Republican Rep. Vin Weber. "But they're not going to keep quiet now." The Republicans who control Congress will also fight to avoid deep cuts in popular programs and to maintain their ability to bring home funds for local projects. So difficult were this year's choices that Congress's initial cuts weren't deep enough to bring the budget within pre-set limits. In the end, lawmakers opted to cut all programs across the board. They even put off a highway-construction bill -- a surefire way for Congressmen to find money for their states -- until next year.
(snip)
In fiscal 2004, which ended Sept. 30, the U.S. registered its biggest-ever deficit in dollar terms: $412 billion. At 3.6% of gross domestic product, that deficit was proportionally smaller than those of the mid-1980s, which surpassed 5% of GDP. With economic growth, good weather, stricter spending discipline and a favorable turn in Iraq, the 2005 deficit could shrink. But the imminent retirement of the baby boomers and the inexorable rise in health-care costs makes the question of government spending more pressing. Tax revenues now represent 16% of GDP, the smallest since 1959. Government outlays are at nearly 20%. By 2008, Mr. Bush's final year in office, the oldest of the baby boomers will qualify for early Social Security benefits. That sets in motion a demographic tidal wave that will overwhelm that program -- as well as Medicare and Medicaid -- unless they're changed.
(snip)
The president campaigned for re-election on a promise to cut the deficit in half by the time he leaves office... But finding areas to cut isn't easy. Of the government's $2.3 trillion spending this year, about 85% is almost untouchable by public consensus. About 20% of the total goes toward defense. Spending in that area has increased 55% on Mr. Bush's watch. The war and reconstruction efforts in Iraq and Afghanistan are running about $5 billion a month, congressional analysts say. Mr. Bush has also embarked on ambitious plans to modernize the armed forces through the use of advanced technology.
Cutting Social Security benefits, which represent another fifth of the budget, is also off-limits -- for now. An additional fifth is spent on Medicare and Medicaid health-insurance programs. A thinner slice goes to unemployment compensation, farm subsidies and other benefit programs. Interest on the nation's borrowing is a big and growing budget item, one that cannot be cut except by slashing the debt itself. The $168 billion in annual payments, much of it to overseas holders of Treasury bonds, represents just over 7% of the federal spending. That's more than the government will spend on education, housing, transportation, science, space and technology combined. The remaining discretionary funds -- and the area Mr. Bush has targeted for shrinking -- cover much of what many Americans typically think of as government work, including breast-cancer research, aid to rural and inner-city schools, veterans' medical care, weather forecasting and park rangers. These annually appropriated activities accounted for about 18% of the federal budget in fiscal 2004.
(snip)
--David Rogers contributed to this article.
Write to Jackie Calmes at jackie.calmes@wsj.com
URL for this article:
http://online.wsj.com/article/0,,SB110358880813305443,00.html