NCPA - National Center for Policy Analysis

Low Deficits Invite Spending

August 26, 1997

Advocates of restraint in government spending are holding their breath, now that the federal budget is heading toward balance. History indicates that it is at just such times that politicians launch expensive new spending programs.

  • In the 1950s, while the federal deficit was averaging almost $10 billion a year in constant 1992 dollars, real spending climbed an average of 4 percent a year.
  • During the 1980s, as deficits averaged more than $200 billion a year in constant 1992 dollars, spending increased only 2 percent in real terms.
  • Under the most recent budget agreement, with a projected deficit of merely $35 billion, several entitlement programs were created, restored or expanded at a total cost of $40 billion over the next five years.
  • The new spending includes $24 billion for child health insurance, the biggest new federal program since Medicaid was created in the mid-1960s.

State revenues are expected to climb nearly 10.7 percent from fiscal year 1996 to FY 1998, and spending is expected to increase 11.1 percent. Much of the state money is going to expand Medicaid, increase education spending and start new health programs for children, according to state budget experts.

Growth in city operating budgets was trimmed in the early 1990s because of the recession. In today's booming economy, there's much less interest in fiscal prudence.

  • According to a survey by the National League of Cities, more than 70 percent of cities surveyed in the early '90s planned to trim growth then -- compared to just 9 percent this year.
  • More than one-third of cities reduced their work forces in '91 -- while only 16 percent say they plan to do so this year.
  • Growth in average city budgets was less than 1 percent in '93 -- but 2.5 percent this year.

At the federal level, Rep. Mark Neumann (R-Wis.) has proposed giving one-third of any budget surplus back to taxpayers, using the rest to pay down the federal debt, and holding federal spending to 1 percent less than the rate of revenue gains.

Source: John Merline, "Downside of a Budget Surplus," Investor's Business Daily, August 26, 1997.

 

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