Bush’s Stealth Budget Strategy

Moderating the federal share of the economy so dramatically is hardly a sure thing. In 2001, government outlays are expected to be 18 percent of the gross domestic product. And several key assumptions would have to be realized to reach the vicinity of 15.6 percent: continued economic growth, annual federal budgets that increase no more than inflation, a conservative in the White House, and perhaps a Republican Congress. In an era of surpluses, the task is all the more difficult. “As soon as the surplus showed up three years ago, all restraint [on spending] evaporated,” says Daniels. “It will take a lot of work to bring back restraint.” Starting with Republicans this year. Senate Republicans voted with Democrats to jack up spending, tentatively, by 8 percent in 2002. This rate of growth over 10 years would not only swallow the surplus and prevent any paring of Washington’s bite of the economy, it would also wipe out two-thirds of projected debt reduction and cut deeply into the Social Security surplus.

The White House is a bit shy about touting the 15.6 percent figure. Yes, it would delight conservatives by fore-shadowing a triumph beyond their wildest dreams. But it would alarm Democratic members of Congress. During Daniel’s confirmation hearing, several Democratic senators brought up the prospect, unappealing to them, of a declining federal share of the economy. So, to avoid terrifying Democrats and members of the media who reflexively favor higher spending, the budget office’s chart with 15.6 percent as the end point in spending was not included in any of the four budget documents released publicly. Still, White House aides talk yearningly about it in private.

Daniels was an unlikely choice for director of the Office of Management and Budget. He was not involved in Bush’s presidential campaign and scarcely knew Bush. He worked in Washington as chief of staff to GOP senator Richard Lugar of Indiana from 1977 to 1984, then spent three years at the Reagan White House as a presidential assistant for intergovernmental and political affairs. Since then, he’s been an executive for Eli Lilly, the pharmaceutical firm based in Indianapolis. In speculation about the budget post, Daniels’s name never surfaced. How did he get the job? Al Hubbard, an Indiana businessman, a classmate of Bush at Harvard Business School and a close friend of the president, recommended Daniels directly to Bush. Vice President Dick Cheney and Andy Card, the White House chief of staff, both knew Daniels from his Washington days and strongly backed him for the budget post.

Daniels says it’s the only job he’s “remotely qualified for” that he actually would have taken. He’s proved to be skillful in packaging and promoting the budget. Karl Rove, Bush’s top political adviser, says Daniels has “an incredible mind,” an “ability to retain numbers,” and a philosophical perspective on the proper role of government. Daniels is mild-mannered, but has a cutting sense of humor. He explained a reduction in Energy Department spending by noting the department’s budget had risen artificially in 2000 to deal with the aftermath of the fire near Los Alamos National Laboratory in New Mexico. “We had a big debate at OMB and decided not to start another fire this year,” he told reporters at a White House briefing.

A striking feature of the budget produced by Daniels is its cleverness. Bush was “very explicit,” Daniels says, about avoiding fights over symbolic issues where little money would be saved and the White House would probably be overriden by Congress anyway. Thus the National Endowment for the Arts and the National Endowment for the Humanities, loathed by conservatives but supported by many in Congress, were spared serious cuts. Reductions at President Clinton’s signature AmeriCorps program were minimal. Cuts at the Environmental Protection Agency were proposed mostly by eliminating “ear-marks” by Congress for pork barrel projects not requested by the Clinton administration. More broadly, the budget proposed to axe half the 6,454 earmarks, at a saving of $ 8 billion.

To Daniel’s surprise, the spending reduction that has gotten the most flak from Democrats and the press is the winding down of President Clinton’s popular program to hire 100,000 local police officers. Funds are already appropriated for hiring 115,000 cops, Daniels told reporters, and now some of the money should be used for school security. Congress enacted the program, he said, as a three-year startup. The grant application “says in six places that this is for three years only.” After that, local governments are specifically obliged to pick up the tab for the new police. “So the benefits of the program will continue and we simply took the Congress at its word,” he said. “Silly us.”

For all the complaints, phasing out the police program is easy compared with the larger assignment of restraining spending over a decade. That task has been made harder by the surge in tax revenues in the Clinton years. In the 1980s, it was assumed if the tax take exceeded 18 percent of GDP, a tax revolt would erupt. But revenues rose to 20.7 percent under Clinton without the faintest sign of a taxpayers’ rebellion. With spending at 18 percent, that means there’s a whopping surplus. The trick is to not let the government spend the surplus. Recent history suggests that task is hopeless. Nonetheless, Daniels, with the magic number of 15.6 percent in the back of his mind, is eager to try.

Fred Barnes is executive editor of THE WEEKLY STANDARD.