Opinion pieces and speeches by EPI staff and associates.
[ THIS OP-ED FIRST APPEARED IN THE RIVERSIDE PRESS-ENTERPRISE ON NOVEMBER 20, 2005. ]
Taming the spending beast
How can Congress reassert control over the U.S. budget? Downsize defense
The Katrina tragedy has stricken members of Congress with some water on the brain. After years of rapid growth in spending and federal debt, they are now homing in on the capillaries of the federal budget rather than the main arteries; they are calling for offsets to new spending devoted to hurricane relief and reconstruction.
Alaska’s bridge to nowhere and its equivalents in other states are outrageous and cost sums that are large by individual standards; unfortunately, the difficulties of the federal budget
are infinitely greater and more complicated.
But getting the nation back on the path to good fiscal health will require a combination of reduced military spending, increased taxes and health-care reform.
Since 2000, when the federal budget was in surplus, the chief causes of deficit growth have been the huge expansion of the military budget, the large tax cuts and the smaller but
historically rapid growth in nondefense spending. The latter, which includes the famous local earmarks – much beloved by members of Congress intent on bringing home the bacon – is the
easiest part of the problem.
Nondefense discretionary spending includes most of what people associate with public services. It’s a relatively minor share of the budget and not so easily reduced for that reason.
At the same time, if it grows about as fast as the economy — as it usually has in the past — it will not present problems in thefuture.
But today’s defense budget is 50 percent larger than it was in 2000, and it was pretty big to begin with. Some of this spending is unrelated to terrorism or the missions in Afghanistan and
Iraq.
On the revenue side, taxes as a share of the economy are about 17 percent, roughly the level of the 1950s. But we don’t have spending at 1950s levels; it’s more like 20 percent of gross
domestic product.
The difference means that the federal government is accumulating debt more rapidly than the economy is growing. That means the interest payments financed by our tax dollars are growing faster than our incomes.
The failure to fund more of the spending increase creates a double whammy: The less you finance spending with taxes, the more interest you have to pay later, and that widens the deficit
gap further.
The biggest growth in future federal spending is in health care. Medicare will constitute twice as big a budget problem as Social Security. The greatest challenge will be paying the growing cost of retiree health care.
As baby boomers retire, spending grows faster than the economy. The two sources of spending growth are Social Security and our major federal health programs: Medicare and Medicaid.
Payroll taxes will finance Social Security benefits for the next 35 years, but some of these taxes have been borrowed by the federal government. It’s up to the government to redeem that
debt. Even so, Social Security is the lesser part of the problem.
To put the budget on a sustainable course, members of Congress must face the need for fundamental reform of U.S. health care. They must also generate more tax revenue and reduce military spending. If they can’t take these needed steps, we might as well look for that bridge to nowhere, because that’s where we’ll all be headed.
Max Sawicky is an economist at the Economic Policy Institute in Washington, D.C.
[ POSTED TO VIEWPOINTS ON JANUARY 12, 2006. ]
