The Real Stimulus Burden

We'll be paying for this in many ways, for many years.

In 2003, amid debate about the Bush tax cuts and a budget deficit of merely $400 billion, Maine Senator Olympia Snowe demanded that any tax cuts be capped at $350 billion. "At a time of growing federal deficits," the Republican declared to much media praise, "it is especially important that this plan be right-sized without putting our future at risk."

AP

Susan Collins, Olympia Snowe, Max Baucus, Harry Reid and Arlen Specter.

Flash forward to Tuesday: Ms. Snowe provided one of three crucial GOP votes that helped Democrats pass $838 billion in new spending and "tax cuts" -- often for people who pay no taxes. The deficit for 2009 even before this stimulus? $1.2 trillion.

If nothing else good comes from this exercise, at least Senators Snowe, Susan Collins and Arlen Specter should be laughed out of town if they ever fret about a budget deficit again.

As of late yesterday, the details of the final House-Senate stimulus bill weren't available. But this much we do know: The bill will mark the largest single-year increase in domestic federal spending since World War II; it will send the budget deficit to heights not seen in 60 years; and it will establish a new and much higher spending baseline for years to come. Combine this new spending, and the borrowing it will require, with the trillions of dollars still needed for the banking system, and we are about to test the outer limits of our national balance sheet.

The three Republican amigos are praising themselves for cutting spending in the House bill by some $100 billion, but this is tinkering around the Beltway edges. The total price tag is still just under $800 billion, and the Senate version even increased spending from the House bill for more than 120 programs -- such as $750 million for farm subsidies. Late yesterday we were hearing that in order to add back more House spending, the conferees were cutting the size of the tax cuts that Barack Obama campaigned on.

The original economic theory behind this bill was to spend the money quickly to create jobs fast. But even the most talented spenders on Capitol Hill couldn't find enough projects to fund in such a rush. So they spread out the largesse over several years -- long after everyone hopes the recession is over. Some of these "timely" stimulus payments won't hit the economy until after the 2016 Olympics.

Even under CBO's conservative estimate, the Senate bill increases outlays by $546 billion over 10 years. But to get this low a figure, CBO assumes that the half-trillion in spending will be a one-time wonder. We are thus expected to believe that Democrats will let these additions to their favorite programs vanish after two or three years. To believe this, you have to ignore the last half-century of budget politics. Spending never declines; at best it merely fails to grow as fast as the economy.

Far more plausibly, Democrats will take the stimulus increases and make them part of a new, higher baseline for future spending growth. Anyone who proposes to cut from that amount will be denounced as "heartless" and Draconian.

The Republican staff of the House Budget Committee has calculated what happens to future spending if Congress continues to fund 19 of the most politically untouchable programs at their new stimulus levels. The list of 19 includes Pell Grants, Head Start money for poor kids, nutrition programs for seniors, Medicaid, special education, food stamps and cancer research at the National Institutes of Health, among others. Across a 10-year period through 2019, these 19 programs alone would increase federal outlays and tax entitlements by $1.59 trillion.

The nearby chart shows how the bill will increase the 2009 budget deficit, which is already the largest in modern history. Perhaps you recall the deficit wails from the Reagan years, but the peak deficit was only 6% of GDP in 1983. In the Clinton years we were told taxes had to rise to reduce a deficit of merely 3.9% of GDP. CBO estimates the 2009 deficit will reach 8.3% of the economy, not including the stimulus or bank bailout cash. Toss in those, and analysts at the Strategas Group estimate the deficit could hit nearly $2 trillion, or 13.5% of the U.S. economy.

We aren't deficit scolds, but these levels are uncharted territory, especially if any economic recovery is weak because the spending doesn't stimulate. The new spending means new federal debt in the trillions of dollars over the next few years, which will test the limits of America's credit-worthiness. To the extent that taxes rise to pay for it all, the U.S. will become less desirable as a destination for the world's capital. Perhaps the Federal Reserve will try to inflate away this growing debt, but the world's bond vigilantes will get a vote on that.

We recognize this bill is going to pass as early as today. But Americans need to understand the vast expansion of government they are getting -- and who voted to pass it.