Not-So-Radical Republicans

Why the GOP budget revolution failed--and how it might succeed

Late last year at a budget strategy session in his office on Capitol Hill, House Budget Committee Chairman John Kasich (R-Ohio) held a briefing for a handful of small-government types on the year's upcoming budget fight. I asked Kasich why Republicans had abandoned their agenda of terminating hundreds of useless federal programs. He cupped his hands behind his head, kicked his feet up on his desk, and declared: "You just don't get it. The jig is up around here when it comes to cutting the budget."

Every jaw in the room visibly dropped. We were stunned by this devastatingly frank declaration of surrender--especially coming from Kasich, the GOP's eternal optimist and the one man on Capitol Hill during the last three years most single-mindedly dedicated to downsizing our $1.75 trillion federal enterprise. That this budget hawk had so clearly lost faith that his Republican brethren would actually cut spending was a depressing and dramatic sign that the GOP's budget revolution was over.

We shouldn't have been so shocked. Kasich had merely jolted us with the obvious truth. As the 105th Congress winds down, the budget is bulkier than ever before. This spring, the Senate Republicans approved a budget that calls for spending and tax cuts that are, in the words of a disgusted Rep. David McIntosh of Indiana, "anemic and an embarrassment." If approved, the federal budget will be some $300 billion higher than when the GOP took over the reins of Congress in January 1995. Adjusted for inflation, the four-year spending total of $7.5 trillion for 1998-2002 is more money than America spent to fight both World Wars, the Civil War, and the Revolutionary War. In fact, in today's dollars, it is more money than the U.S. government spent on everything from 1800 to 1960.

This story is eerily familiar. In his masterful 1985 critique of the Reagan administration's failure to cut the budget, The Triumph of Politics, former Office of Management and Budget Director David Stockman complained that the Reagan revolution amounted to "the clearest test of doctrine ever likely to occur in a democracy like our own" and that "the anti-statist position was utterly repudiated by the forces of the politicians--Republican and Democrat alike." Stockman glumly concluded that, by 1984, "the Reagan White House was nearly bereft of any consistent anti-spending policy principles."

And so it is in 1998 with the Republican Congress. Only a few years after the November 1994 election that swept Republicans into power on Capitol Hill, the Newt Gingrich-led budget revolution on Capitol Hill is a shambles. Fiscal conservatives have been thoroughly trounced--again. Today there is no strategy and no will power to cut anything out of the budget: not maple syrup research grants, not Jimmy Carter's home heating subsidies, not military funding to build skating rinks in Alaska, not taxpayer handouts to Fortune 500 companies. Nothing.

This duplication of the failed Reagan assault on the budget 15 years earlier raises two questions: Why won't Republicans--who continually advertise themselves as the party of smaller and smarter government--actually cut the budget? And have fiscal conservatives and libertarians been entirely naive in ever expecting them to?

The short answer to the second query is yes, and for reasons that relate to the first one. The dissipation of the Reagan "revolution" and its more recent analogue underscores basic insights of public choice economics: that government is predisposed to grow rather than shrink; that politicians, regardless of ideological bent, have strong incentives to spend tax dollars and to maintain or expand the power that spending confers; and that fundamental reform must ultimately come from deep-seated institutional change, not merely a switch in legislators. Add to that two other ingredients--a healthy economy that automatically generates enough revenue to balance the budget, thus removing the spur for serious cuts, and the fact that most congressional Republicans have never been committed to limited government--and the reasons for the GOP loss of nerve become clear.

Before exploring how and why the Republican budget revolution drifted off course so wildly and so quickly, it's only fair to acknowledge some impressive accomplishments made in the immediate aftermath of the electrifying election results of November 1994. Consider, for instance, the 1995 Freedom to Farm bill, which promises to end most crop payments by 2002. Though the law is far from perfect (and the jury is still out on whether subsidies will actually expire when the appointed time arrives), it allows farmers to produce for the market, not for the government.

Similarly, the 1996 welfare reform bill was a great victory for limited government. Despite its technical flaws and the subsequent restoration of some benefits, that bill reversed 30 years of federal welfare expansion. It changed the open-ended nature of welfare payments by requiring work and by devolving many welfare responsibilities to the states. We've already seen a 30 percent to 40 percent decline in welfare caseloads in many states. This bill was a watershed for another reason, too: For the first time in half a century, the left was forced to concede that a massive government undertaking--in this case, the $5 trillion Great Society welfare state--had failed.

But the most heralded, and improbable, fiscal accomplishment of the GOP Congress has been the balanced budget. Uncle Sam could end 1998 with a budget surplus of $50 billion or more. That will mark the first time since Lyndon Johnson's presidency that the budget has not been in the red. It's safe to say that the surplus would not have arrived had it not been for the GOP's unwavering crusade for an end to deficit spending. Arguably, Newt Gingrich's finest hour as speaker came in March 1995, when he rallied the entire Republican House caucus behind the idea of eliminating the deficit within seven years. Skeptics said it could never be done, and in a sense they were right: Congress didn't balance the budget in seven years--it did so in three. Clinton hogs the credit for the balanced budget, but the real turning point in the fiscal improvement came with the 1994 elections. When the Republicans took Congress, the baseline Clintonomics budget forecast was $200 billion deficits for as far as the eye could see.

Finally, since November 1994 Republicans have presided over a sizzling economy and a record bull market on Wall Street. When Republicans took over Congress in November 1994, the Dow Jones Industrial Average stood at 3,800. Since then, the Dow has gained more than 5,000 points--reflecting the greatest buildup of wealth in American history. Make no mistake about it: This is not a Bill Clinton but a Newt Gingrich bull market. "The markets love Republicans not for what they do, but for what they don't do," economist Arthur Laffer has hypothesized. "They don't raise taxes, they don't nationalize the health care system, they don't erect new protectionist trade barriers." Republicans can be counted on to do minimal harm, and in this global, high-tech economy, that may be good enough to keep markets chugging along.

Yet for all of these accomplishments, there is still the nagging and unavoidable reality that no matter how you measure it, the government--aside from military programs--isn't getting any smaller. Republicans have now approved four budgets (for fiscal years 1996 through 1999) that have allowed total nondefense expenditures to expand by $62 billion more than in the four years before the GOP took over Congress.

Republicans counter these depressing numbers by noting that Congress lacks unilateral authority to scale back ravenous entitlement programs--which is where most of the budget growth is. The president's signature is required to change the law on public benefits. For instance, back in 1995, during the infamous two-and-a-half-week-long shutdown of the government, Republicans had approved Medicare and Medicaid reforms that would have saved roughly $30 billion per year. Those savings were vetoed by Bill Clinton.

In the end, though, this explanation for federal budget expansions is unconvincing. If entitlements are the problem, why have congressional Republicans continued to accommodate the president's requests for new ones? Bill Clinton didn't put a gun to Republicans' head last year when they funded five new welfare, health care, and education entitlements.

Senate Budget Committee Chairman Pete Domenici of New Mexico has valiantly trumpeted the GOP budget record by announcing that total federal spending as a share of national output is falling. And indeed, federal spending is now below 21 percent of gross domestic product, down from its zenith of about 23.5 percent during the Bush-Darman years.

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