Stop playing politics with the budget

Posted: Jun 20, 2002 12:00 AM
A favorite liberal trick is to always call any proposed reduction in the rate of growth of spending a "cut." This implies that some people will end up with less than they are getting now, when in fact they will get more -- just not as much more as they would get without the so-called "cut." Another liberal trick is to exaggerate the size of future budget deficits or diminish the size of surpluses by assuming passage of new tax reductions. For example, groups like the Center on Budget and Policy Priorities regularly include a fix for the Alternative Minimum Tax problem in their projections, even though no legislation along these lines is under consideration. To be sure, the AMT needs to be fixed -- and probably will be. But it is also clear that many spending programs will also have to be fixed. In particular, federal health programs are out of control. Some method of reducing their cost will have to be found. But liberals never include this in their projections. They would rather just attack anyone who says so for wanting to slash Medicare and Medicaid, in order to scare the poor and elderly into voting Democratic. Why am I so certain that future spending for health will have to be reduced? The nonpartisan Congressional Budget Office explains in a new report examining 125 years of federal spending from 1950 to 2075. It paints a chilling picture. As recently as 1960, the federal government spent virtually nothing on health. Neither Medicare, which provides virtually unlimited health benefits for the elderly, nor Medicaid, which provides health care for the poor, even existed. Social Security retirement benefits consumed 13 percent of federal spending, and interest on the debt took up another 8 percent. Thus 80 percent of spending went to national defense, public works, agriculture and every other thing the federal government does. Fast forward to the year 2000. Social Security has roughly doubled as a share of the gross domestic product and now takes up 23 percent of the budget. Interest has gone up 50 percent and now absorbs 12 percent of the budget. But the major growth has been in health care, which has gone from nothing to 3.4 percent of GDP and 18 percent of the federal budget in a generation. Medicare alone now costs the economy as much as Social Security did in 1960. Since overall federal spending has only risen from 17 percent of GDP in 1960 to 18.5 percent in 2000, this means that the "all other" portion of the budget has been severely squeezed. It has fallen by almost 60 percent, from 13.5 percent of GDP to 8.6 percent. As a share of the budget, it has fallen from 80 percent to less than half, meaning that income transfers now account for a majority of all outlays. But the future is far worse. By the year 2075, under current law, Medicare will rise to 9.9 percent of GDP and Medicare will increase to 5.3 percent. In other words, these two programs alone, neither of which existed in 1960, will just about equal the total size of the federal government that year. Social Security, by contrast, is growing relatively slowly. Although near-term spending will rise fairly sharply as the "Baby Boom" generation reaches retirement age, its long-term spending is flat. It will rise to 6 percent of GDP in 2030 and remain roughly fixed at that level until at least 2075. The CBO makes the unrealistic assumption that taxes will not rise as a share of GDP over the next 75 years, so higher spending results in large budget deficits. As a consequence, interest on the debt explodes to 13.6 percent of GDP by 2075. All other spending, including defense, falls to 7.1 percent of GDP in 2020 and stays there. But because the rest of the budget is rising sharply, this category of spending falls to one-third of the budget in 2030 and half that in 2075. In the CBO's projection, total federal spending more than doubles as a share of GDP between now and 2075, reaching 42 percent of the nation's economy. Some European economies already have governments that take that much out of total output, so this is not an impossibly large figure to contemplate. But an America in which 42 percent of all spending in the economy goes through Washington will be an America far different from this one. There are only two options. Either taxes must more than double -- which will not be accomplished by soaking the rich, but only by making all Americans pay far more than they do now -- or spending will have to be "cut." It would be nice if liberal groups would at least acknowledge this reality, instead of only playing politics whenever a Republican suggests simply slowing the rate of growth of health spending.