February 11, 2004

How Big?

By Stan Collender

One couldn't help but be struck by the record-setting $2.4 trillion size of President Bush's fiscal 2005 budget. But as big as all those news reports make it sound, the Bush "budget" was actually much higher -- a take-your-breath-away $3.9 trillion.

That's what you get when you add the budget's proposed spending to its proposed revenues and, therefore, get a picture of everything Washington is proposing to do and its true impact on the economy.

At the risk of overstating the obvious, the most basic budget calculation of all is when spending is compared with...drum roll, please...revenues. That's what tells a business whether it's earning a profit and how the government knows whether it has a surplus or deficit.

That means that revenues are at least as important a part of the budget as spending.

But, as the Bush administration's budget--and the ensuing press reports--showed, revenues are often left out of the discussion these days. They are talked about as if they have a life of their own, yet revenues are every bit as dependent on congressional and presidential actions as spending. And they have the same impact on the bottom line.

This slight is a both a mistake and a problem.

The mistake comes from not realizing that the federal government accomplishes much of what it tries to do through the tax code rather than through spending measures. By cutting an individual's or business's taxes if they agree to do what the government wants, Washington often can have at least as big of an impact as if it decides to spend money on something. The budget actually calls the revenue provisions that do this "tax expenditures."

The problem happens because attention is focused on only part of "the budget." That means that in a year like this, when the deficit is an issue, only part of what the federal government does gets scrutinized. Only spending seems like a legitimate topic for debate.

In fact, the Bush budget included a proposal that would guarantee this would be the case. The White House wants to reimpose the pay-as-you-go rules, but only for new mandatory spending. New tax reductions that do the same thing would not have to be offset with other revenue increases or outlay reductions.

In other words, a provision that created a new entitlement program for farmers who grow, say, kiwis, would be subject to Paygo. The kiwi subsidy would require a spending cut or revenue increase to compensate for the impact on the budget, and would likely have a lower chance of being adopted as a result. Yet a tax provision with the same impact on the bottom line that provided a similar incentive to kiwi growers would not have to be offset, and would therefore have far fewer political problems getting adopted.

That's the equivalent of a business deciding that an increase in marketing expenses would hurt the bottom line but that a reduction in price would not. Only one of the two options would appear to have a cost. That would always make a price cut the much more likely choice even though the marketing initiative might actually result in better sales growth and financial results.

So the Bush Paygo proposal would impose a cost on new federal spending initiatives but none on a revenue provision designed to do the same thing. That wouldn't change the likelihood that the government would get involved, only that everyone would come to Washington looking for a new tax expenditure rather than a new spending program. The impact on the number of kiwis available to consumers might be the same and the effect on the deficit might be equal, but the budget process would look favorably on one and not on the other.

It should be obvious, however, that the federal "budget" effectively increases whether spending is higher or revenues lower. The sooner we start to admit that, the more honest the debate will be.

And the Bush Paygo proposal should either be changed so that it applies equally to spending and revenues, or it should not be enacted at all.

Question Of The Week

Plenty of Unfinished Business. The question from three weeks ago asked readers to guess the color of the Bush fiscal 2005 budget. The vast majority of people who responded said it would be blue, but the correct answer turned out to be green. That means that the fabulous "I Won A 2004 Budget Battle" pennant goes to Robert Diamond, who works for the Defense Contract Management Agency.

The question from two weeks ago asked you to speculate on whether conservative Republicans will have what it takes to force the Bush White House to change plans on the budget this year. Readers were about as closely divided on this question as the voters in Florida were in 2000.

Almost half -- 48 percent said "yes," 44 percent said "no," and 8 percent said "maybe." The winner of the "I Won A 2004 Budget Battle" pennant is Eric C. Jones, Commanding Officer of the United States Coast Guard's Harriet Lane. As far as anyone here can determine, Commander Jones is the first winner who reads Budget Battles at sea.

Last Week's Question. Last week's question asked readers to specify the deficit limit for fiscal 2005. The answer, as many knew, is that there is no deficit limit. In fact, annual statutory limits on the deficit were eliminated in 1990 when the Budget Enforcement Act replaced Gramm-Rudman-Hollings and they haven't been heard from since. For those who said that the deficit limit was $0--technically that means that there can be no deficit at all, so it's incorrect. The winner of the pennant is Joseph A. Violante, national legislative director for the Disabled American Veterans.

This Week's Question. As this week's column indicates, the Bush administration has suggested a number of budget process changes in its fiscal 2005 budget. The question: Which committee in the House has jurisdiction over budget process revisions?

Click here to send in your response, which must be received by 5 p.m. PST on Saturday, Feb. 14, 2004. You must include a mailing address so we can send you the "I Won A 2004 Budget Battle" pennant if you win. If more than one person submits the correct response, the winner will be selected at random from that group. Note to government employees: Because of security procedures at many offices and facilities, your home address will be the best way to make sure the pennant actually gets to you.