Why Budgets Matter: Budget Policy and American Politics.

By Dennis S. Ippolito. University Park: Penn State University Press, 2003. 329p. $55.00 cloth.

Dennis Ippolito has written another important book on the federal budget. Yet whereas his previous books focused on parts of the budget, for example, credit programs (Hidden Spending, 1984), entitlements (Uncertain Legacies, 1990), and defense spending (Blunting the Sword, 1994), Why Budgets Matter is a comprehensive analysis of federal budgeting from 1789 to 2001. Although it has become conventional wisdom that the budget dominated Washington politics in the 1980s and 1990s, Ippolito shows that the budget has been an instrument of government policy since the origins of the federal government.

One genuine achievement of the book is the organization of a massive amount of information into historical periods that correspond with larger developments in American politics. Ippolito combines secondary sources with extensive references to government financial documents to map budget decisions over time, identify changes in major priorities, and link budget decisions to broader developments in United States domestic and foreign policy. The history is divided into six periods: the “small government” era (1789–1860), budgeting for government growth (1860–1915), the transition to modern government (1915–40), war and defense budgets (1940–70), social welfare budgets and deficits (1970–90), and reconciliation and balanced budgets (1990–2001). Each historical chapter contains information and analysis of changes in aggregate revenues and spending, allocations among major spending categories (e.g., mandatory and discretionary programs) and revenue sources (e.g., excise, customs, individual income taxes), and tax policy and expenditures for specific government departments and programs. In order to make comparisons over time and between parts of the budget, most of the data are presented as percentages of the gross domestic product. Each of the historical chapters also describes relevant changes in the budget process. The final chapter concisely summarizes future budgetary challenges, especially the impending crisis of entitlement spending.

A second important point made in the book is that policy innovations enacted with perhaps modest intentions in earlier periods grow in complexity and can have enormous consequences in later periods. The revenue effects of the individual income tax authorized by Amendment 16 to the Constitution in 1913 are limited to the receipts of a relatively small number of wealthy income earners until World War II, when the tax is extended to the mass population of workers. The Social Security Act of 1935 began as a limited pension program, but it laid the foundation of the welfare state and ultimately grew to be the most expensive program in the budget. Unexpected growth in the costs of Medicare and Medicaid, begun in 1965, will continue to vex policymakers well into the twenty-first century. Ippolito notes that Medicare prescription drug coverage (not approved by Congress until after the book was published) should not greatly affect the proportion of health-care outlays to the economy over the next decade, but will have much greater repercussions after the baby boomers become eligible for benefits (p. 302).

Perhaps the most important contribution of the book is the description of how the purposes of budgeting evolved over time and how they are linked to larger transformations in American politics. For most of U.S. history, budgeting has been anchored by the principle of balance, yet even in the early nineteenth century, policymakers struggled with the practical demands of the principle. Moreover, the goal of balancing the budget quickly became less important than deciding the levels of spending and taxation at which the budget should be balanced. Spending and revenue levels were largely determined by historical exigencies (recessions and wars) and presidential priorities. In the twentieth century, the principle of a balanced balance itself receded in importance and became more difficult to achieve, as new and competing purposes of budgeting entered the fray. With the Great Depression, President Franklin D. Roosevelt began to use the budget as a fiscal policy tool and a vehicle for addressing various social ills and basic material needs. World War II brought greater demands on U.S. foreign policy and reduced the flexibility of the defense budget. Resources to fight wars traditionally required additional taxes or borrowing, but wartime expenditures were temporary deviations in discretionary spending from the norm, and debts would be paid after the war was over. As the United States emerged as a major superpower and confronted communism, peace dividends began to shrink, and the defense budget required sustained resources in order for the U.S. military to perform more complicated and expensive tasks both during and between military engagements.

The competing purposes of the budget—to provide a strong national defense and ongoing international military presence, to improve social conditions, and to use taxes and spending to shape fiscal policy—converged in the 1960s and 1970s. New commitments in health care (Medicare, Medicaid), a host of social welfare programs, and increases in Social Security benefits drove the mandatory side of the budget; the Vietnam War and Soviet nuclear threat demanded more for defense; and the twin evils of recession and inflation created new challenges for fiscal policy. The mix of policy choices and multiple purposes of the federal budget laid the ground for the partisan debate over the role of government that continues to this day.

A broad historical account of budget policy will inevitably have to cut corners in a few areas. For instance, Ippolito makes only a few comparisons between state and federal spending in the nineteenth century. It would be interesting to carry forward this vertical dimension of budgeting into the twentieth century. The implications of trade-offs between federal and state spending have become more important as policymakers attempt to achieve competing policy goals and deal with the mounting complications of federal–state programs. The concerns are particularly grave in the area of health-care policy.

Given the extensive body of data and information on developments in budget policy, the book offers an invitation to scholars interested in theories of legislative decision making and policy change. Do major shifts in budget policy conform to a common set of conditions? What are the precise causes of congressional responses to presidential budget proposals? To what extent do tax and spending policies meet expectations of path-dependent theories of policy change? Thus, in addition to establishing the centrality of the federal budget to American politics, Why Budgets Matter lays the foundation for further study of budget policy.