Election-year budgets always embody campaign strategy, but President Bush's $2.4-trillion spending plan for the fiscal year beginning Oct. 1 offers a goody bag unprecedented in size and scope. In addition to permanent tax cuts for business, the Bush plan includes substantial spending increases for Defense and Homeland Security, a new Mars exploration package and a price tag for Medicare prescription-drug benefits that's 30% higher than the administration had originally estimated.
The lavish expenditures have raised eyebrows among the president's party faithful. "Our party's credibility on spending is slipping," Rep. Paul Ryan (R-Wis.) complained last week. The chair of the conservative House Republican Study Committee, Rep. Sue Wilkins Myrick (R-N.C.), concurred: "People back home are very upset with spending."
Many presidents have tried to spend their way to reelection. Eight years ago, President Clinton's micro-initiatives rewarded a variety of swing voters with "targeted" benefits. But when presidents prime the pump for political purposes against their better economic judgment and ideological convictions, the costs to the nation can be steep and lasting.
Unlike the president's father, who signed an unpopular tax increase to restrain a runaway deficit -- and his role model, Ronald Reagan, who stayed the course with monetary contraction and painful reductions in social spending despite a deep recession and high unemployment -- Bush's budget strays far from his cherished small-government principles. Indeed, today's White House strategy most closely resembles the 1972 reelection plans of Richard M. Nixon, whose heavy-handed manipulation of the policy levers and generous payouts to key constituencies produced a well-timed, short-lived boom with devastating long-term consequences.
At the beginning of the 1972 campaign, Nixon was worried about the economy. Early in his presidency, the nation had struggled through a stiff recession: Unemployment soared and stubborn inflation forced the president to institute wage-and-price controls, the first in peacetime in U.S. history. After disappointing reversals in the 1970 midterm elections, Nixon told his top domestic advisor that he could not afford a slowdown during the reelection campaign. The economy, Nixon insisted, "must boom beginning July 1972." The administration pulled out all the stops in its effort to stimulate the economy. Despite signs that inflation had cooled and that, as economist Milton Friedman put it in July 1971, the economy had "lots of steam in the boiler," Nixon refused to take chances with gradualism. He proposed and won a series of tax cuts to stimulate the economy and abandoned requests for commensurate spending cuts.
At the same time, the Nixon administration presided over explosive growth in the money supply. No evidence exists suggesting that Federal Reserve Chairman and Nixon associate Arthur Burns deliberately overheated the economy to help reelect the president. Still, the popularity of easy money certainly convinced the Fed chairman to brush aside warnings that expanding the money supply at three times the historical rate posed substantial economic risks. Three months before the election, Burns told his colleagues that he "personally wanted to enjoy the period -- however brief it might prove to be -- of relative tranquillity and marked achievement which monetary policy has experienced over the past year."
Burns' peace of mind proved short-lived and expensive. The economy overheated in 1972, unleashing devastating inflation, crippling business, eroding savings and causing the worst economic crisis since the Depression. Still, along with Nixon's tax cuts and expansive spending, it produced the election-year boom that Nixon had demanded.
But that alone did not satisfy the Nixon administration. The president also delivered the goods to key constituencies, foremost among them elderly voters he had described as "a generation no longer forgotten." The key battleground involved Social Security benefits.
Rep. Wilbur Mills (D-Ark.), chairman of the House Ways and Means Committee, had entered the race for the Democratic presidential nomination. He rested his White House hopes on an audacious proposal to attract seniors. Mills proposed an immediate 20% increase in Social Security payments, reductions in taxes seniors owed on their benefits, and automatic cost-of-living adjustments, or COLAs, for future payouts. Unlike with most pie-in-the-sky campaign plans, however, Mills had the clout on Capitol Hill to push through his plan even as his presidential bid fizzled.
Mills' proposal posed a dilemma for Nixon. The White House understood that the plan meant economic disaster. "There is no magic actuary-alchemist," Budget Director George P. Shultz told the president, "who can provide benefits without incurring costs." The huge increases, coupled with the COLAs, would stoke inflation; they would also saddle the federal budget with ever-increasing entitlement obligations that would necessitate tax increases and cuts in other programs.
But in an election year, Nixon decided he couldn't afford to oppose the Social Security proposal. After signing into law a plan he knew to be irresponsible, the president deftly took credit for the increases. Fatter Social Security checks went out a few weeks before election day, along with a letter informing senior citizens of the president's role in their good fortune. No one mentioned the new taxes to pay for them, which went into effect the following January.
The political benefits of such fiscal recklessness are as clear as the cautionary tales of more responsible policies. Early in 1980, the Carter administration undertook draconian measures to derail inflation. The ensuing recession dragged into the fall and scotched Jimmy Carter's reelection bid. A decade later, the first President Bush signed a tax increase to rein in the budget deficit, which slowed the economy and contributed to his defeat in 1992.
By contrast, Nixon won a memorable landslide, but his political success exacted enduring costs -- spiraling inflation, anemic productivity growth and a yet-to-be-resolved crisis in entitlement spending.
Like Nixon, the second President Bush continues to ask Congress for fiscal restraint, but his own mammoth spending undermines the credibility of those requests. The trouble he may be borrowing, for his hoped-for second term and for the nation, may not be worth the votes he will earn.