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April 07, 2004

Why Kerry's Spending Cap Sucks

Kerry has announced his deficit cutting plan. Proposals to eliminate Bush's tax cuts for the wealthy, require new spending to be paid for with new taxes or other spending cuts, and cutting corporate welfare are all reasonable.

But his proposal to require that all spending, other than education and security, increase no faster than inflation is horrible, bad, and evil. It's what we'd expect from a rightwinger.

I'm a relative deficit hawk (thanks Max!), but this is fiscal illiteracy.

Cutting Spending for Individuals: If you have a growing population-- which we do -- increasing spending in a category only as much as inflation means that the money has to be divided up between more people each year.

Which means an inflation cap is a net cut in spending per person. So that means:

  • cuts in payments to each disabled person
  • less money per person for roads & subways
  • less money for each child in child care
  • less job training money for each worker

    From his explanation of the proposal, it's unclear whether he would apply this to Medicaid. If it does, his plan would be an assault on health care for the poor.

    Kerry may be trying to prove his fiscal discipline, but that means raising taxes on corporations and the wealthy and cutting back on Bush's useless military expansion. As Iraq is showing, wars don't bring security, they just create more demand for more troops.

    War is the source of exploding spending: "Discretionary spending" is not the source of the explosion in the deficit. On top of the tax cuts, here are the facts (courtesy of the Center on Budget and Policy Priorities):

  • Funding for defense, homeland security, and international affairs has risen 47.6 percent between 2001 and 2004, after adjusting for inflation.
  • Funding for domestic discretionary programs outside homeland security has risen only 10.3 percent, after adjusting for inflation.
  • Most of the 10.3 percent increase came in the appropriations bills written in 2001 when policymakers believed large surpluses remained. Since then, increases have been less than one-third its 2002 rate.

    When measured as a percentage of GDP spending-- what percentage of our collective income we devote to non-defense discretionary spending-- it's held even at 3.4% of GDP.

    By contrast, funding for defense, homeland security, and international affairs has jumped from 3.4 percent of GDP in 2001 to 4.7 percent of GDP in 2004.

    Here is the CBPP graph on what led to the explosion in the deficit. Hint-- it's not domestic discretionary spending:

    If people want a permanent 1.3% jump in percentage of the economy devoted to war, we should make a permanent jump in taxes to pay for it. Slashing government spending for individuals, especially the most vulnerable poor who are likely to feel this axe, under the fake rubric of a supposed freeze in spending is the wrong and inhumane solution.

    Political Loopholes: We'll see if Kerry announces in the fine print that he meant "inflation plus growth" as a cap on spending, but so far this proposal by Kerry is the most alarming example of bad policy.

    Although Kerry is sneaking in new education and health care spending by handing out "tax credits"-- converting a proposed $225 billion in education and health spending into a tax cut proposal.

    Update: Kevin has more.

    Posted by Nathan at April 7, 2004 07:18 PM