Social Studies February 2005

Gramm-Rudman—a Bad Idea Whose Time Has Come Again

Perhaps Bush's concentration on the deficit might improve if Congress were to write his projected deficits into law.

To understand how serious President Bush is about reducing the federal deficit, open his fiscal 2006 budget to page 364 and consider Table S-12, "Impact of Budget Policy." Here you can see that under present policies ("current services"), the deficit would be $361 billion in fiscal 2006, $303 billion in 2007, and $207 billion in 2010. You can also see the effect that Bush's budget would have on the deficit. Under Bush's plan, the deficit would likewise be $207 billion in 2010. But it would be $390 billion in 2006, and $312 billion in 2007.

Those numbers are not misprints: Bush's proposed deficits are higher than under existing policies. Between 2006 and 2010, his budget would increase the cumulative deficit by $42 billion. If you want to reduce the flow of federal red ink, a better plan would be to drop Bush's budget in the recycle bin and, simply, do nothing.

How can this be? After all, the administration claims that the budget would cut the deficit in half over five years. The answer is that Bush would cut nonsecurity discretionary spending—but he would more than offset those reductions with spending increases in other categories and with tax cuts. It is the economy, not Bush, that would halve the deficit.

All of that is according to Bush's own accounting, which is, one might fairly say, incomplete. His budget, notes The Washington Post, "does not include future expenses of the continuing wars in Afghanistan and Iraq, nor does it include up-front transition costs of restructuring Social Security as Bush has proposed." (It does include an $81 billion supplemental appropriation in fiscal 2005, mostly for Iraq.)

Yes, the budget holds discretionary nonsecurity spending below the rate of inflation, but that category accounts for less than one-fifth of the total budget. And even in that sector, according to the Cato Institute, the administration's vaunted elimination of 150 programs would reduce 2006 spending by less than 1 percent.

At the Heritage Foundation, budget analyst Brian Riedl notes that Bush's budget does not get a handle on swelling entitlement costs. But, Riedl adds, it's better than any of Bush's earlier budgets, which increased domestic discretionary spending. "We're just trying to turn the ship around over here," he says, with what sounds, over the phone, like a shrug.

Fortunately, the situation is not unprecedented. The country has been here before.

It is 1985, and the president has just been re-elected. The deficit has been rising through his first term, despite his annual promises to cut it. Rising also are the trade deficit and dependence on foreign capital. Congress is alarmed but undisciplined. As for the president, the deficit is his second priority. His first priority is everything else—especially avoiding tax increases, increasing security spending, and protecting entitlements.

His method of squaring the circle is to propose reductions in one narrow portion of the budget, domestic discretionary spending. Most of these cuts are too politically sensitive to pass Congress, especially when other parts of the budget and taxes are fenced off; and in truth, the president does not seem particularly interested in getting them passed. He and members of Congress all protect their agendas, and the deficit takes the hindmost.

In September of 1985, three senators—Phil Gramm, R-Texas; Warren Rudman, R-N.H.; and Ernest Hollings, D-S.C.—unexpectedly offer the ugliest, stupidest bill anyone has ever seen. It proposes to set declining annual deficit targets and impose primitive across-the-board cuts ("sequestration"), as needed, to reach the goals. Rudman calls the measure "a bad idea whose time has come."

In 1985, no one liked this Frankenstein's monster, but no one could stop it, and it had a certain monstrous logic. The real aim was not to cut spending automatically or even to meet precise targets, but to use the threat of sequestration—which would brutally and mindlessly reduce both domestic and defense spending—to force the White House and Congress into deficit-reduction negotiations. In effect, the monster took the Pentagon and domestic spending hostage. "Did I ever expect it to work exactly as written?" asked Rudman in a recent interview (he is now with the law firm Paul, Weiss, Rifkind, Wharton and Garrison in Washington and is co-chairman of the Concord Coalition, an anti-deficit group). "Of course not." But, he said, "it had a tremendous intimidation factor on a lot of people."

Mechanically, the measure, which came to be known by the shorthand "Gramm-Rudman," failed. Congress generally managed to evade or raise its limits. But it was not without effect. First, "Gramm-Rudman made it easier to go after defense [spending] as well as other elements," says William Niskanen, a former Reagan administration economic adviser who now is the chairman of Cato. Second, says Timothy Penny, a Democratic member of Congress during that period (now a senior fellow at the University of Minnesota's Hubert H. Humphrey Institute of Public Affairs), "it kept us focused on spending and the size of the deficit. The virtue of Gramm-Rudman was not that it worked as designed, but that it elevated attention to the deficit."

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Jonathan Rauch is a contributing editor of The Atlantic and National Journal and a senior fellow at the Brookings Institution.

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