Federal Spending Scary-High? Well, Let’s Look Under the Hood

Mitt Romney’s choice of Congressman Paul Ryan as his Presidential running mate effectively doubles-down the Republican rally against President Obama’s taxing and spending policies.  “Federal spending is too high,” they say in near-unanimity, “and President Obama is to blame for it.”  But what can we say about current spending levels–their substance, who is responsible for it, and how to fix it?

The biggest drivers in spending growth are way the entitlements, especially the very-popular and successful entitlements for the elderly, and spending on Defense.  Defense spending is programmed to come down, partly due to prudent reductions programmed under our drawdown from the War in Afghanistan and through the 2011 Budget Control Act, and partly due to Congress’ (and the President’s) failure to strike further budget compromise to avert the doomsday scenario of further budget cuts under the immoderate “Sequester.”  In terms of other government spending, the biggest driver of future Federal spending growth is way, way Medicare; nothing else comes close.  Over the past 10 years, Republicans have actually been far greater offenders when it comes to Medicare spending growth than Democrats, 1st in adding a popular but expensive Prescription Drug Benefit to Medicare in 2003 (which Congressman Ryan voted for, and on which he explicitly modeled his proposed Medicare reforms), then in opportunistically campaigning against the $500 billion in 10-year Medicare spending cuts the Democrats passed in the Affordable Care Act in 2010–the largest Medicare spending reform achieved to date.

Other spending increases of the Obama era include temporary increases in mandatory spending, according to criteria often programmed before the President began crafting budgets and which he doesn’t want to cut because, well, people are relying on them right now.  The overall level of spending remains high in part because of recent discretionary budget increases, but in very large part because of increases in outlays for income security, Defense spending, and yes, entitlements for senior citizens. You can see these outlays disaggregated and in constant dollars on pages 54 and 55 of the President’s FY 2013 budget proposal.

Medicare outlays rose from over $375 billion in 2007 to over $484 billion this year, in constant dollars. At the same time Social Security outlays will have risen from $586 billion to nearly $779 billion. That’s a $302 billion increase in real spending on just Medicare and Social Security–28% of the total increase in Federal outlays over that period. In contemporary form, the 2 parties are mostly responsible for any of this spending only in creating the Prescription Drug Benefit (mostly George W. Bush and his Republicans in 2003) and then tweaking it (Barack Obama and his Democrats in 2009-10). So if we’re keeping score, current Republicans can take at least as much credit for these rising costs as current Democrats, and we all know very well that this spending is not what the President was talking about when he proposed “investments in America’s future.” I’m not saying we should short-change grandma or anything, but to be fair President Obama invited Congressional Republicans to engage him on entitlement reform during summer 2011’s debt-reduction standoff, and they folded their arms and took the easy way out.

There has been a near-$48 billion increase, to $139 billion in “education, training, employment and social services” outlays from 2007 to the projection for 2012. This spending increase is also principally because of ameliorative services, not new programs.

Income security including unemployment benefits rose from $366 billion in 2007 to about $580 billion this year, an increase of almost $214 billion. Needless to say, the extension of unemployment insurance has something to do with that, but Congressional Republicans were more than willing to consent to that to extend the George W. Bush tax cuts for the rich. Furthermore, cutting skilled but chronically-unemployed workers off of unemployment insurance is bad policy (and even if you don’t agree with that, you *have* to agree that it’s bad politics). In any case, those outlays will fall gradually with time, concurrent with the end of the extension and the (slow) fall of the unemployment rate.

General Federal health spending, including Medicaid as well as Federal employee health benefits, amounted to about $266 billion in 2007 and almost $362 billion for 2012, about a $95 billion increase.

Total Defense spending has risen from $551 billion in 2007 to $716 billion in 2012–a $165 billion real increase in 5 years.

So, where are we? That’s $824 billion of a $1.066 trillion increase in Federal spending 2007-12, or 77% of it. That’s mostly mandatory or military spending; military spending is slated to fall by either about $500 billion or $1.1 trillion over the next 10 years, depending on whether Republicans and President Obama (that order was intentional) can get their act together to negotiate deficit reduction. Of the mandatory spending, I’d definitely like to see responsible reform of Social Security and Medicare the most, even if that means raising the benefits collection age and moving Medicare towards–*towards*, mind you–a defined-contribution rather than an unwieldy defined-benefit entitlement. But I do not buy this argument that the high spending that followed TARP was “locked-in” through some unclear mechanism, nor that the Stimulus (about 1/3 of which consisted of tax cuts) is responsible for relatively-high Federal spending, nor that Democratic policy priorities are simply to blame. Defense spending can be lowered somewhat, and we *need* to reform seniors’ entitlements.

On page 35, note that total Federal tax receipts have fallen from 18.5% of GDP in 2007 to a projected 15.8% of GDP for this fiscal year. We’re overspending–not always in ways that are properly-stimulative–and we are undertaxed, thanks to certain special interests that contribute to certain political campaigns as well as a piece of paper that Grover Norquist wrote when he was a 7th grader, and to which all Congressional Republicans have subordinated their judgment.

This is not to say that the President has no responsibility for current high levels of Federal spending.  I’d even agree that he has dropped the ball on deficit reduction, having walked away from the recommendations of his own Deficit Commission faster than its Conservative detractors (which included Congressman Ryan).  But the Republican motion that President Obama took Federal spending to its current heights as part of a plan, and that all of the inflated spending must be handled proactively, and that Democrats have done nothing of late on their own motion to rein it in, is a falsehood.  Medicare reform will have to be bipartisan; that is the biggest piece of the puzzle by far.


One thought on “Federal Spending Scary-High? Well, Let’s Look Under the Hood

  1. Tracee

    At this time it appears like Drupal is the preferred blogging platform
    out there right now. (from what I’ve read) Is that what you are using on your blog?


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