Revised March 5, 2004

CONCENTRATING ON THE WRONG TARGET:
Bush Cuts Would Reduce Domestic Discretionary Spending,
As A Share of GDP, To Its Lowest Level in 46 Years

By Isaac Shapiro and David Kamin

PDF of report

Press Release:
  Deep, Widespread Cuts in Domestic Programs Over Next Five Years Under Administration Budget

Related Report:
Administration’s Budget Would Cut Heavily Into Many Areas of Domestic Discretionary Spending After 2005

Fact Sheet:
Broad Cuts in Domestic Programs After 2005 Under Administration Budget

View Related Analyses

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Key Findings

  • The increase in domestic discretionary spending (outside homeland security) accounts for just five percent of the deterioration in the fiscal picture from 2001 to 2004.

  • As a share of GDP, domestic discretionary spending is currently below its average level since 1970.  Domestic discretionary spending is just one-sixth of the budget.

  • Under the Administration’s budget, in 2009 domestic discretionary spending as a share of GDP will fall to its lowest level since 1963.
  • The cost of the tax cuts for the top one percent of taxpayers substantially exceeds the savings from all of the proposed cuts in domestic discretionary programs.

The Administration’s new budget has one main focus when it comes to reducing the deficit:  domestic discretionary spending.  This focus is disproportionate; the rise in domestic discretionary spending plays a bit part when it comes to telling the story of why the nation’s fiscal situation has worsened.  Further, because such spending constitutes a minor part of the budget, even though the proposed cuts in this area will hit a range of programs sharply, the cuts will not dramatically improve the fiscal picture.

 

Recent Domestic Discretionary Spending Trends

As a share of GDP, domestic discretionary spending has risen since 2001.  This increase is explained entirely by bipartisan efforts to boost spending in the areas of education and transportation and for the National Institutes of Health.  Outside of those areas, domestic discretionary spending has essentially remained flat as a share of GDP.

Further, the overall increase has not been very significant.  It still leaves such spending below its average over the past few decades.

The rise in discretionary spending explains only a tiny fraction of the deterioration in the nation’s fiscal situation.

 

How Domestic Discretionary Spending Fares Under the Budget

Overall, the Administration’s budget would make future deficits larger than they otherwise would be, mostly because of its proposal to make its tax cuts permanent.  The budget singles out domestic discretionary spending for belt-tightening.  Here, deep cuts are proposed by 2009, sending such spending to an exceptionally low level.

The Administration’s budget proposes to cut funding for domestic discretionary programs in 2009 by $49 billion — or 12 percent — below the 2004 level, adjusted for inflation.[2]  Substantial reductions would occur in the number of children who would be enrolled in federally subsidized child care, and the nation’s principal low-income housing program would be hit especially hard.  The cuts would occur even in most of the popular programs the Administration proposes to increase in 2005, and would be enforced by new budget procedures.

As a result, as a share of GDP, already-below-average spending on domestic discretionary spending would plummet to a level not seen in many decades.  In 2009, domestic discretionary spending would equal just 2.6 percent of the economy, the lowest level since 1963.  See figure and Table 1.

 

Table 1
Domestic Discretionary Spending (Outside Homeland Security)
as a Percent of GDP

Year

Percent

 

 

Year

Percent

1963

2.5%

 

 

1987

3.0%

1964

2.8%

 

 

1988

3.1%

1965

3.0%

 

 

1989

3.0%

1966

3.3%

 

 

1990

3.1%

1967

3.4%

 

 

1991

3.2%

1968

3.4%

 

 

1992

3.3%

1969

3.1%

 

 

1993

3.3%

1970

3.2%

 

 

1994

3.3%

1971

3.5%

 

 

1995

3.3%

1972

3.6%

 

 

1996

3.1%

1973

3.6%

 

 

1997

3.1%

1974

3.4%

 

 

1998

3.0%

1975

3.8%

 

 

1999

3.0%

1976

4.4%

 

 

2000

3.0%

1977

4.5%

 

 

2001

3.1%

1978

4.6%

 

 

2002

3.3%

1979

4.4%

 

 

2003

3.4%

1980

4.6%

 

 

2004est.

3.4%

1981

4.3%

 

 

2005est.

3.3%

1982

3.8%

 

 

2006est.

3.1%

1983

3.7%

 

 

2007est.

3.0%

1984

3.4%

 

 

2008est.

2.8%

1985

3.4%

 

 

2009est.

2.6%

1986

3.2%

 

 

 

 

Sources:  Office of Management and Budget and the Congressional Budget Office.


End Notes:

[1] Specifically, as a share of GDP, domestic discretionary spending has risen by 0.25 percent since 2001.  This represents 1/22 of the overall deterioration in the fiscal situation from 2001 to 2004 of 5.43 percent of GDP.

[2] This analysis compares OMB’s proposed funding levels to the OMB baseline, rather than the CBO baseline, for ease of analysis.  The CBO baseline is slightly lower in aggregate than the Administration’s baseline because of lower inflation projections.  If the Administration’s fiscal year 2009 domestic discretionary funding levels are compared to the CBO baseline, the cut in 2009 is $45.4 billion, or 10.4 percent, below the fiscal year 2004 level adjusted for inflation.