- The Washington Times - Sunday, August 4, 2002

Before September 11, the annual "guns or butter" budget game had become easy to play. This was especially so when the Clinton White House breezily underfunded guns, while a roaring economy and soaring stock market generated enough tax revenue to finance mountains of butter. Since September 11, when terrorists attacked the homeland during the third quarter of a recession that the Clinton-Gore administration bequeathed to its successor, President Bush has sought to moderately re-order America's spending priorities. Overwhelmingly approving defense appropriation bills at levels acceptable to the White House, as the House did in June and the Senate did on Thursday, was a step in the right direction.

Yet, in the aftermath of terrorist attacks that claimed more than 3,000 lives on American soil, the Democratic-controlled Senate and Congress' entrenched bipartisan spending machine have become utterly flummoxed by the president's attempt to allocate a marginally larger share of the budget to fighting the war on terrorism. The so-called World's Greatest Deliberative Body seems institutionally incapable of coming to terms with the need to temper nondefense spending. As a result, the Senate has failed to pass a fiscal 2003 budget resolution. It's the first time either congressional body has failed to do so since the 1974 budget-reform law was passed. This is not only outrageous but irresponsible - a fact that will become even more obvious with a bit of desperately needed historical perspective on the budget.

Let's begin with the end of the Cold War, whose conclusion precipitated major reductions in defense spending. The result was a hefty "peace dividend" that the Clinton-Gore administration, its Democratic colleagues in Congress and free-spending Republican appropriators were only too happy to divert to domestic programs. Not surprisingly, they overreached, defense spending was permitted to plunge too deeply, and now Mr. Bush is attempting to re-order priorities by moderately increasing relative defense spending.

There are several ways to measure the important concept of relative defense spending, which is that portion of the nation's resources allocated to national defense. You can calculate it as a percentage of the nation's total economic output, or gross domestic product (GDP). You can measure it as a percentage of total federal budget outlays. Or, you can tally it as a percentage of discretionary outlays, the subset of the federal budget that is subject to the annual congressional appropriations process. In addition, the level of defense spending can be adjusted for inflation and compared from one year to the next. Each way has its own benefits. What follows is an analysis of how these proportions and levels have changed during the crucial 16-year period from 1986 through 2001. Fiscal 1986 represented the post-Vietnam peak of defense spending measured as a percent of GDP; and fiscal 2001 represented the last of the Clinton-era budgets.

In 1986, defense spending was 6.2 percent of GDP. By 2001, it had fallen to 3.0 perecent of GDP. For fiscal 2003, which begins Oct. 1, Mr. Bush wants to spend 3.5 percent of GDP on defense. For all the talk about Mr. Bush's five-year "defense build-up," by 2007 defense spending as a percentage of GDP is expected to be 3.3 percent. By way of contrast, in 1962 defense spending amounted to 9.4 percent of GDP; and the nation was not in a shooting war.

In 1986, budget outlays for national defense totaled $273.8 billion. That represented 27.6 percent of total federal budget outlays of $990.5 billion. In 2001, defense spending was $309.1 billion, or 16.6 percent of total federal budget outlays of $1,863.9 billion. That represented a decline of 11 percentage points [-] a hefty peace dividend, indeed. In 2003, Mr. Bush seeks to spend $379 billion for defense, or 17.8 percent of total budget outlays. By 2007, defense is expected to comprise 17.9 percent of total budget outlays, which, after the five-year "defense build-up," would still leave defense spending nearly 10 percentage points below the 1986 figure of 27.6 percent.

In 1986, defense spending represented 62.4 percent of total discretionary outlays of $438.5 billion for that year. (In addition to funding national defense, discretionary outlays, which Congress must appropriate each year, provide funding for the federal courts, education, the national parks, Head Start, space exploration, foreign aid, nutrition, etc. The balance of federal budget outlays, or non-discretionary portion, includes interest payments and entitlements, such as Medicaid and Social Security.) Compared to the 62.4 percent of total discretionary outlays commanded by defense in 1986, the proportion for defense plummeted to 47 percent in 2001. For 2003, Mr. Bush would increase it to 48 percent. In 2007, it would be 50.3 percent.

Real defense spending, which is spending adjusted for inflation, had declined precipitously since the its Cold War peak. Specifically, inflation-adjusted annual defense outlays for 2001 and the previous five years had averaged nearly 30 percent below their peak in the 1980s. For that same six-year period (1996-2001), military spending measured in constant 1996 dollars had averaged more than $100 billion per year less than the peak in the 1980s. Mr. Bush seeks to partially redress that drastic imbalance.

Now, here's what happened to the butter in the discretionary accounts subject to annual congressional appropriation. As noted, nondefense discretionary outlays rapidly increased from 1986 through 2001. In 1986, those outlays totaled $164.7 billion. By 2001, nondefense discretionary outlays reached $348.3 billion, reflecting an increase of more than $180 billion, or 111 percent, over the period. In 1986, the $164.7 of nondefense discretionary outlays were 60 percent of the $273.8 defense outlays. In 2001, nondefense discretionary outlays exceeded defense outlays by nearly $40 billion, whereas defense spending exceeded nondefense discretionary outlays by $110 billion in 1986. In other words, as defense spending plunged from 62.4 percent of total discretionary outlays in 1986 to 47 percent in 2001, nondefense discretionary outlays increased from 37.6 percent to 53 percent.

The figures barely begin to tell the full story about guns and butter. After all, they reflect changes only in those programs subject to the annual appropriations process. Not only has defense spending fallen from nearly two-thirds of total discretionary outlays in 1986 to less than half in 2001, a process that Mr. Bush's budget would only moderately change. But non-discretionary budget outlays have increased from 55.7 percent of total federal budget outlays in 1986 to 64.7 percent in 2001. Recall that the vast majority of non-discretionary spending, exclusive of interest payments, includes such mandatory entitlement programs as Social Security, Medicare and Medicaid. In other words, these programs are all butter. Consider how massively they grew between 1986 and 2001. Outlays for Social Security increased from $199 billion to $433 billion, Medicare increased from $70 billion to $218 billion, and federal outlays for Medicaid increased from $25 billion to $129 billion. Cumulatively, those three programs alone increased from $430 billion in 1986 to $986 billion in 2001, or by 130 percent.

Mr. Bush's 2003 budget seeks to increase defense outlays from $348 billion in 2002 to $379 billion in 2003. The same budget proposes to raise nondefense discretionary outlays from $392.5 billion to $410 billion. It should hardly be a surprise that the president, in the middle of a shooting war, seeks to increase defense spending more than nondefense discretionary spending. Yet, the Democratic leadership, its rank-and-file and the appropriators from both parties refuse to apply even a modicum of fiscal discipline to nondefense spending after having eviscerated spending for national defense for a decade-and-a-half. Meanwhile, the major entitlement programs remain on automatic pilot.

Why does the Democratic Party have a problem with the president's five-year budget plan? What don't the bipartisan big spenders get? During the period of the "peace dividend," while defense spending was slashed, nondefense discretionary spending roared ahead, as did the mandatory spending for entitlements. House and Senate conferees plan to iron out a compromise when they return from August recess. Because of September 11, Congress must learn to re-prioritize federal spending. Let's get on with it.


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