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2 IRET Congressional Advisory 1 (1991)

handle is hein.taxfoundation/iretcgadv0002 and id is 1 raw text is: October 8, 1991 No. 2 PRESIDENT BUSH'S NUCLEAR ARMS INITIATIVE IS NO EXCUSE FOR A DOMESTIC SPENDING SPREE The Bush Administration's step-down in military preparedness recognizes, it is to be hoped accurately, that the Soviet military threat has substantially diminished. This is one of the very rare instances in which government programs are being pruned back because the need for them has decreased. President Bush's announcement of dramatic, unilateral cuts in U.S. nuclear forces was followed immediately by demands for major increases in domestic government spending programs. As a New York Times headline reported, Calls to review budget pact rise; Bush's move to reduce arms opens door... At a time when government expenditures, taxes, and budget deficits are all setting records, it is hard to imagine a less appropriate response. Whatever defense spending cuts are made possible by improved international conditions should be devoted to cutting taxes or reducing the deficit, not to throwing more money at expensive, ineffective domestic spending programs or dreaming up new ones. Still less should the military cutbacks be seized upon as an excuse for gutting the spending restraints included in last year's budget agreement. Although the new budget enforcement provisions are weaker than the old Gramm-Rudman constraints, they do exert some expenditure restraint and are better than nothing. That is why some policy makers are so eager to break them. A predictable consequence of trashing the budget accord is that a flood of new domestic spending would be unleashed. For every budget dollar saved on defense, several would be added to domestic programs. The perverse results would be escalating federal budget deficits and renewed calls for higher taxes that would further retard productivity and growth. The peace dividend would be squandered and then some. Excessive domestic spending increases are especially likely because the military savings from Bush's initiative tend to be exaggerated. For the most part equipment that has already been purchased will be retired or used less intensively. This is analogous to closing off a room in a house to reduce heating costs. It means lower maintenance and operating costs in the near term. The big-ticket savings will not come until future years, when less military equipment will need to be replaced. During the cold war, heavy U.S. military spending was a drain, albeit a necessary one, on U.S. living standards and international competitiveness. The drop in defense spending is welcome economic news because, with fewer resources being devoted to military uses, more labor and capital resources will be freed for non- military purposes. If the government passes the savings on to the productive private sector, the infusion of resources will lower production costs and raise output. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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