Bush Slashes Funds For Key Programs

The growing budget crunch may squeeze the middle class and business owners

As the fight over the federal budget intensifies, policy analysts forecast that deficits and spending trends will force the White House and Congress to make hard fiscal decisions that may hurt a broad swath of Americans — from emerging entrepreneurs to working families.

The budget crunch is coming down hardest on discretionary domestic programs that many middle-class African Americans depend on such as small business development, Pell Grants for college students, and job training, remarks Thomas Boston, professor of economics at the Georgia Institute of Technology and member of the BLACK ENTERPRISE Board of Economists.

“Spending for the war in Iraq, interest on the federal debt, and the huge trade deficit will combine to create upward pressure on interest rates that will be felt in middle-class households and small businesses that have to make loans above prime,” says Boston.

Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C.-based policy research institution, sees President George W. Bush’s plan to make massive tax cuts that largely benefited the wealthy as a big contributor to the growing budget crunch and the steady flow of budgetary red ink.

Despite an initial budget surplus, the administration ran a string of deficits in Bush’s first term totaling nearly a trillion dollars, from $158 billion in fiscal year 2002, to $375 billion in ’03, and $412 billion in ’04.

The net interest on the national debt at $160 billion, or 7% of federal spending, was relatively low in ’04. However, by fiscal year 2014, Uncle Sam will be paying an estimated $441 billion in interest, or 11.5% of all spending. As fighting in Iraq continues, spending for national security is likely to rise beyond the $482 billion in ’04, now one-fifth of the budget. The nonpartisan Congressional Budget Office projects spending for national security to be an estimated $501 billion in ’05, not including additional requests by Bush.

The U.S. Treasury Department’s Final Monthly Treasury Statement reveals that the federal government spent a record $2.29 trillion in ’04. But just six items made up more than 75% of total federal outlays — national defense, Social Security, Medicare, health, interest on the debt, and federal employee and military retirement (see chart). That leaves only a quarter of the budget to pay for a myriad of discretionary federal programs that many Americans rely upon.

Kogan observes that the fastest growing federal programs are Medicare and Medicaid. Social Security — if Bush’s overhaul is approved — will skyrocket, requiring a projected $2 trillion in transitional costs. The costs of Medicaid and Medicare will begin to balloon in five to eight years when the baby boomers start to retire no matter what action Congress takes. “At some point, Washington will have to decide if protecting Social Security and Medicare is worth raising taxes or cutting programs for everyone else,” Kogan says. “Many social programs that support those most in need are being squeezed now, like Section 8 housing certificates and extended support for the unemployed.”

Federal Spending for Six Big-Ticket Items for

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