There's nothing new about big-spending presidents

USA Today (Society for the Advancement of Education), March, 1998 by C. Eugene Steuerle, Gordon Mermin

Now, it is easy to understand why some presidents were big spenders -- they got to spend peace dividends. Truman did so after World War II, Eisenhower after the Korean War, Nixon as the Vietnam War wound down. and Bush in the post-Cold War era.

Apart from defense, other methods of easy financing were available in the first few decades after World War II. These allowed Eisenhower, John F. Kennedy, Lyndon Johnson, and Nixon to increase domestic spending more easily than other presidents. Rising inflation from the end of the Korean War until the late 1970s eroded the value of government debt, acting like a large tax on holders of outstanding bonds. This allowed the government to run significant deficits even while its debt-to-GDP ratio generally was failing.

Bracket creep in the individual income tax was another method of easy financing. Inflation and the strong economic growth of the period (at least until it slowed in the mid 1970s) pushed taxpayers into higher tax brackets. These sources of funds allowed the government to raise support for many domestic programs without appearing to pay for them through legislated tax increases or reductions in other programs.

Steady increases in Social Security taxes provided yet more easy financing. The payroll tax rate rose about three percentage points per decade from 1950 to 1990, from three percent to 15.3% of taxable wages. Payroll tax increases during most of this period were hardly noticed. The tax started out small; changes were deferred until years after legislation passed; and most voters at the time were promised lifetime benefits far in excess of taxes to be paid.

None of these methods of easy financing is readily available today. Defense spending as a percentage of GDP soon will fall below its lowest point since 1948. This means there is a limit on the amount of funds that could be transferred from defense to domestic spending, even if the military budget were shaved further. There is little or no peace diviend left, and what does remain already has been committed. No additional $800,000.000,000 will be available to transfer to domestic spending without raising taxes.

Government no longer can depend on inflation to erode the value of government debt. In the late 1970s, the Federal Reserve Board began an aggressive anti-inflation effort that has led to lower rates of inflation. Government now pays higher rates on its outstanding debt than it does on new debt. Bracket creep in the individual income tax, which in the past brought government more revenue, has been curtailed by indexing of tax brackets for inflation since 1984. The Social Security tax rate already is higher than it has ever been, and the public is far more resistant to further increases. The system no longer is able to make every cohort of senior citizens a winner by passing on higher and higher financing obligations to future generations.

Fiscal policy not only moved away from easy financing, it moved into a straitjacket. What is fairly unique today, in comparison to much of American history, is that domestic policymaking is determined primarily by previous voters and policymakers. Their principal control comes from the entitlement programs, enacted in the past, that increasingly dominate Federal government activity. The continuous growth of programs such as Social Security, Medicare, and Medicaid means that revenue growth for tomorrow already is spent. Indeed. it is overcommitted.