A house in disorder
December 6, 2005 | By The Heritage Foundation
Sometimes you just have to wonder what, exactly, Congressional leaders are thinking.
Senate Majority leader Bill Frist (R-TN) told reporters last Friday that “federal spending for nondefense, nonsecurity activities has, indeed, been held flat by this president and by this Congress.”
You know, he’s absolutely right. If by “held flat” he means “bloated by 22 percent.”
But in the everyday language you and I use, Senator Frist is dead wrong. The federal budget expanded by $610 billion between 2001 and 2005, or nearly $22,000 per household. Of this increase, only a third was defense spending. And discretionary spending—that is, money not spent on entitlement programs like Social Security and Medicare—rose by 36 percent, a rate ten times the rate of inflation.
But the worst thing about these spending increases is the timing. With 77 million baby boomers set to retire in the coming decade, entitlement spending will rise to 28 percent of GDP by 2050. Seeing as taxes only account for 18 percent of GDP, this could be more than a small problem.
The mind-boggling budget explosion
A quick look at the current federal budget should give you some pause.
- Federal spending has grown twice as fast under President Bush as under President Clinton
- Federal spending has increased by 33 percent since 2001, from $1,863 billion to $2,470 billion
- Federal spending neared $22,000 per household in 2005, the highest level since World War II (inflation-adjusted)
- The federal government ran a budget deficit of $2,809 per household in 2005
- Education spending rose 100 percent between 2001 and 2005, energy spending rose 15,911 percent (yes, that’s fifteen thousand, nine hundred and eleven percent) and spending on “international affairs” rose 71 percent
More of these outrageous numbers are available in the October report on spending prepared by Brian Riedl, Heritage's Grover M. Hermann Fellow in Federal Budgetary Affairs (link in PDF).
The long-term spending problem…
But the really mind-blowing problem is in long-term spending.
If entitlements expand as projected, federal spending could rocket up to more than 70 percent of GDP. Combined with spending by states and local municipalities, America’s economy would be more government-run than any European country.
Which leads to a budget problem…
What compounds this problem is taxation. Historically, the government has collected roughly 18 percent of GDP in taxes. The government would obviously be unable to spend more than three times its income, so it would have to dramatically hike taxes.
Riedl predicts that taxes may have to climb by 57 percent, or nearly $11,000 per household (in today’s dollars).
Which leads to an economy problem
Tax increases of that nature would bring economic growth to a halt and make it hard for you and I to even make ends meet. Of course, an economic collapse would drive down federal revenues and make the promised benefits even less affordable.
But there’s no economy problem today
Actually, that’s not strictly true: Congress could be our economy problem. But aside from that, “the economy is in strong shape,” Heritage’s Rea Hederman and Bill Beach report.
Last week saw a string of good news, from an upward revision of economic growth to a report that the economy generated 250,000 jobs in November. Even consumer confidence is picking up, rising dramatically in a recent poll.
Low taxes have proved to be the driving force behind the economic expansion of the past several years. For example, a new chart from the Department of the Treasury shows the correlation between the tax cuts and job growth.
But this economic expansion depends on low taxes, Heritage’s Bradley Fellow in Labor Policy, Tim Kane and Rea Hederman explain. So if the tax cuts are allowed to expire in 2008, the business investment that drives the economy will dry up. And Congress is doing its best to allow this to happen by not extending the 2003 tax cuts.
There’s good news on spending too
Not everything is bad news on the spending front. “The good news on entitlement reform is that they will be fixed—because they have to be fixed,” Brian Riedl said Monday at a Heritage event. Government spending will rocket so far out of control, he says, that lawmakers will be forced to take action—although when they will do so is open to question.
And the other good news is that there are millions of conservatives like you across the country who believe in spending reform. So get active! Tell your representatives in Washington that you want reform. Write to your local newspaper and talk to your friends. And get started on MyHeritage.org.
In other news
- Senator George Allen (R-VA), running for reelection next year, called for Republicans to reassert their conservative values of “less taxation, less litigation, [and] greater energy independence in this country.” He said the GOP needs to stand up for “common-sense Jeffersonian conservative principles.”
- As I mentioned above, the economy added 250,000 jobs last month. Responding to those reports, Jonah Goldberg wrote in National Review that America “create[s] more jobs by accident than all the industrial planners in Europe have been able to create in years of hard strategizing around mahogany tables festooned with clever cheese.”
- American automakers are requesting a multi-billion-dollar federal bailout—actually, they insist we not call it that, so let’s call it corporate welfare or giving them other people’s money—to compensate them for the inefficient business practices that have hurt their bottom lines.
- MyHeritage.org has already made some new liberal “friends.”
According to a website called “The Watch,” MyHeritage.org “has no place being listed alongside genuine news articles.” The article goes on to say that MyHeritage.org is symbolic of conservatism’s success in breaking into the media, adding that “I fear the battle may be lost” for liberalism.
