Unrestrained U.S. federal spending

President Bush is not the first president to face a serious threat to America's national security. The situation confronting Ronald Reagan in 1981 was far worse, with the Soviet Union at the peak of its power and a U.S. military that had been severely weakened by Democratic government during the 1970s. As bad as today's terrorist threat may be, thousands of nuclear missiles aimed at the United States were a much greater threat, says Bruce Bartlett.

Yet despite the need to rebuild America's defences, Reagan never let it be an excuse to give up on controlling domestic spending. It would have been a lot easier for him to buy the votes needed for national defence by loosening the domestic spending reins, says Bartlett.

But he never did and fought hard to bring domestic discretionary spending down from 4.7 percent of the gross domestic product (GDP) in 1980 to 3.1 percent by 1988.

That is equivalent to reducing spending by $165 billion per year in today's economy.

By contrast, George W. Bush has raised domestic discretionary spending by 0.4 percent of GDP in just his first 2 years in office -- equivalent to $630 billion over the next decade if sustained.

A key reason why Reagan made his effort is because he understood that the health of the U.S. economy was critical to national security and the defeat of Soviet communism. He knew that big government is a drag on the economy -- not just because of the high taxes that go with it, but because it pre-empts resources that the private sector can use more efficiently. Thus, an increase in government's share of GDP will eventually reduce growth even if taxes don't rise, explains Bartlett. (See the figure.)

Source: Bruce Bartlett Unrestrained Federal Spending, National Center for Policy Analysis, September 8, 2003.

For text http://www.ncpa.org/edo/bb/2003/bb090803.html

For more on Federal Spending and Budget Issues http://www.ncpa.org/iss/bud

FMF Policy Bulletin\9 September 2003