The "Beltway Cut"

How to cut the budget while growing it.


So you're the president. Your party has just taken a beating in the 2006 mid-term elections. Voters came to realize that your party—over the previous 20 years has been affiliated in the public imagination with fiscal discipline—was no longer interested in making government smaller. So when it comes time to present your first federal budget in the post-rout era, what do you do?

If you're George W. Bush, you start the spending bonanza all over again, with an opening bid of $2.9 trillion. You increase the Pentagon budget by 10 percent, and that's before you add the price of the troop surge for the increasingly unpopular war in Iraq. In short, you do what you've always been doing. You spend like hell and hope nobody—particularly fiscal conservatives—pays attention.

If you've followed media reports about the budget, you might have the impression that the Bush budget actually cuts spending overall. The Boston Globe, for instance, reported "deep cuts" in the Bush plan. But only by the pretzel logic of Washington could an overall spending increase of 4 percent, as Bush has proposed, be considered a cut. It's what you might more accurately call a "Beltway cut."

Here's how it works: Assume government spending will continue to grow annually by seven percent on average, as it has for the past six years. Then imagine you only get a four percent increase this year. Official Washington would see this as a three-percentage point cut. It's the fiscal equivalent of a recovering alcoholic drinking only two and a half beers instead of the whole six-pack before the A.A. meeting.

Another example of the Beltway cut is the president's proposal for Medicare, a program which is already racking up an estimated $32 trillion dollar deficit over the next 75 years. The new budget simply reduces the expected growth of the program from an average of 6.5 percent each year to 5.6 percent. That modest decrease in the rate of expansion was enough to make the New York Times editorial board livid, calling it an attempt to "slash key entitlement programs."

The Bush proposal does include some useful structural changes to Medicare that could reduce the long-term deficit in that program by $8 trillion. But even that is yet another version of the Beltway cut. His Medicare drug benefit has already increased those unfunded liabilities by more than $8.7 trillion. His proposals still leave a $700 billion hike intact.

In order to balance the budget by 2012, as Bush claims he wants to do, spending would have to actually be cut from current levels. But what's so special about 2012? The president could have presented a plan that really cuts overall spending, and balances the budget by the time he leaves office. This might have helped repair some of the damage of the past six years, during which Republicans successfully destroyed their image as the party of small government by hiking non-defense spending over 40 percent since 2001. And balancing the budget in the next two years would completely eliminate the Democrats' ability to use the deficit as a reason to kill the Bush tax cuts. Instead, the president has honed in on 2012, four years after he's left office.

Meanwhile, Democrats will continue to say the president's budget will destroy the social safety net and the press will continue to claim it is austerity incarnate. The bipartisan embrace of the Beltway cut continues and political life goes on. Everyone goes home happy.

Except taxpayers.

Stephen Slivinski is director of budget studies at the Cato Institute and author of Buck Wild: How Republicans Broke the Bank and Became the Party of Big Government .