Lean Times: Bush May Freeze or Cut Domestic Spending Next Year

President George W. Bush may freeze or cut domestic spending next year, causing even his favorite programs to operate on fewer dollars.

The cutbacks may help to ease the deficit, but what do they mean for education, security, healthcare, and other life issues?

Prioritizing during a lean time - what won’t get cut

Although domestic spending is likely to see major cutbacks, defense spending will remain intact, including funds for the operations in Iraq and Afghanistan. Homeland security programs will also be protected from cuts, as will entitlement programs like Social Security and Medicare.

These expenditures use up a significant portion of the budget, with defense and security at 21 percent, Medicare and Medicaid at 21 percent, and Social Security at 21 percent. Add in another 12 percent of mandatory spending on programs like welfare, unemployment, military retirement benefits, and farm subsidies, and that leaves just 25 percent of the budget that’s left to play around with.

Then again, 7 percent of that goes to the interest on our national debt, another mandatory expenditure. So, what’s left over? Just 18 percent of federal spending that Congress and the Bush administration can look at for cutbacks.

What may get cut

Roughly 18 percent of the budget is not mandatory and up for review by Congress. This spending, known as discretionary spending, is the likely target of any cutbacks.

This portion of the budget provides funding to highway construction, federal education programs, new equipment for the Federal Aviation Administration, Army Corps of Engineers water projects, and subsidies to Amtrak, just to name a few.

Programs that were cut this year are likely to be cut again. The National Science Foundation, which provides research grants to senior university researchers and graduate students alike, saw its funding cut for the 2005 fiscal year (FY), and may be a target for FY 2006 as well.

Pell grants, which provide federal funding to underprivileged college students, are also vulnerable. The grants have been frozen at $4,050 for three years in a row despite the 28 percent average increase in tuition at public colleges. When rising costs and inflation are considered, these programs, and others like it, are actually suffering cuts when their budgets are frozen from year to year.

In addition, any increases to programs that receive discretionary spending, like NASA, are likely to result in decreases to other programs.

Why is discretionary spending the main focus of the cuts?

The Wall Street Journal reports that discretionary spending is growing much more slowly than other parts of the budget, like defense. But in a time of war, defense and homeland security aren’t likely to be cut. And the funding to programs like Social Security and Medicare is mandated by legislation. It’s easier to cut discretionary spending because it’s already reviewed each year by Congress.

Why does Bush want to cut domestic spending?

The looming national debt is prompting Bush to cut spending. At election time, Bush pledged to cut the deficit in half by the end of his term. Cutting spending is one surefire way for the Bush administration to make good on that promise, which deficit hawks, foreign investors, Federal Reserve Chair Alan Greenspan, and most Americans want him to keep.

But another of Bush’s promises is troubling his critics: his vow to revamp the Social Security system by diverting Social Security taxes into private accounts. Regardless of the arguments for and against the reforms, the overhaul would cost approximately $2 trillion over ten years, money that Bush is planning to borrow. This expense certainly won’t help the national debt.

Are there other ways to reduce the debt?

Of course, raising taxes is another way to reduce the debt. Higher taxes mean more money in the federal treasury and less money to borrow from other countries. However, Bush has sworn not to raise taxes, and many of the tax cuts he made in his first term are likely to become permanent. Rolling back some of the recent tax cuts to the wealthiest Americans was the policy of the Kerry campaign; however, Bush and some of his supporters believe in less government anyhow. This is their opportunity to choose what services to cut.

WomenMatter will keep us posted on precisely which programs are chosen for cuts. What will the Democrats do? Will all Republicans follow the President’s lead? Will the war expenses be included in the budget or be “off budget" as emergency expenses - all of which require more borrowing from those who are willing to buy our bonds. If those nations that usually buy our bonds (Japan and China for example) demand greater interest on those loans, then all interest rates will go up - including our mortgages.

Should we expect lower taxes during a time of war? Is this the right time for a Social Security overhaul? Is it better to cut programs that receive discretionary spending or to raise taxes or both? What are you willing to do to decrease the national debt?

What do you think?

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Article Posted on: 1/5/2005