The Unsustainability of Federal Spending

Townhall.com ^ | January 10, 2015 | Ed Feulner

[Kaslin]

With so many high-profile, headline-grabbing issues facing the incoming Congress, lawmakers might be tempted to ignore one of the most persistent problems in Washington: overspending.

How bad is it? In 2014, federal spending reached $3.5 trillion, and the one-year deficit was $486 billion. And these huge numbers represent “a small and temporary improvement in the nation’s fiscal situation,” a recent report by The Heritage Foundation notes.

But as the authors point out, that doesn’t mean we’re on the right track. Far from it. A serious effort to cut spending -- not just trim a bit here and there -- is needed.

“Without further spending reforms, rising debt threatens to impede growth, harm Americans’ economic opportunities, and even threaten the nation’s security,” the authors warn.

If that sounds a bit hyperbolic, consider these facts from the report:

• Washington spent nearly $3.5 trillion in 2014 (that’s $3,500,000,000,000) while collecting nearly $3 trillion in revenues, resulting in a deficit of slightly less than half a trillion. In other words, 14 cents of every dollar that Washington spent in 2014 was borrowed.

• Over the past 20 years, federal spending grew 63 percent faster than inflation.

• Mandatory spending, including Social Security and means-tested entitlements, doubled after adjusting for inflation.

• Discretionary spending grew by 47 percent in real terms.

• Despite publicly held debt surging to three-fourths the size of the economy (as measured by GDP), net interest costs have fallen as interest rates have dropped to historic lows.

• Three major budget categories -- major health care programs, Social Security, and interest on the debt -- will account for 85 percent of nominal spending growth over the next decade. Entitlement reform is a must to curb the growth in spending.

Even though mandatory spending on entitlement programs is by far the largest slice of the budgetary pie, that doesn’t mean there aren’t other cuts that can be made. Wasteful spending abounds -- unless you think the National Institutes of Health spending $387,000 of your money to study the effects of Swedish massage on rabbits is essential.

Sure, $387,000 isn’t much by Washington standards. But the budget is filled with such examples, and every little bit helps. It’s easy to shrug off one or two, but getting rid of enough of them can make a real difference.

There’s also far too much redundancy in the budget. According to a report from the Government Accountability Office, duplication of federal programs and services could cost taxpayers $45 billion annually. Elimination of wasteful and duplicative spending is definitely a worthwhile task for the new Congress.

Another huge driver of future overspending? Obamacare. New spending for the absurdly misnamed Affordable Care Act will cost more than $1.8 trillion over the next decade, and why? Because of its massive expansion of Medicaid and subsidies for those who buy health insurance in the new exchanges.

Some may suggest cutting defense spending, but as a percentage of the budget, it’s already been falling for quite some time. In 1965, defense spending was 7.2 percent of GDP. In 2014, it was 3.5 percent of GDP -- less than half of what it was in 1965.

Meanwhile, entitlement spending has been booming. Social Security, Medicare, and Medicaid make up 77 percent, or more than three-fourths, of mandatory program spending in 2014 -- and have no budget limits.

To put the problem of overspending in perspective, consider what is perhaps the most striking chart in the Heritage report. It’s titled “What if a typical family spent money like the federal government?”

It notes that the median family income is $52,000: “If they spent money like the federal government, they’d spend $60,400 a year, which would mean they’d put $8,400 on the credit card each year, despite already being $308,800 in debt.

This is unsustainable. Does the new Congress realize this? More importantly, do they care?

[Jim Noble]

Mandatory spending, including Social Security and means-tested entitlements, doubled after adjusting for inflation

There is no such thing as mandatory spending. Congress could end it tomorrow.

[willywill]

I think the number is 94 million not working. I’d say all of them are getting some government money. cutting the budget wont work. we’re heading for a train wreck.

[gorush]

This is the “best case” scenario. If the dollar is removed as the world’s reserve currency, hello Germany 1920’s.

[Gaffer]

I’m guessing QE will still roll along at a $75-85B clip per month to buy off the market and the budgets will still be in the red and the BLS will continue with its outputs....all until November 2016. Depends on what party wins the WH then and we’ll see. I’d expect the whole ball of wax to unravel in January 2017 if a Republican is elected.

[goodnesswins]

Soooo....let’s spend $60 Billion more on FREE Community College!!!

[windsorknot]

Vote-buying is the #1 spending priority.

[dware]

Here's my issue with this: Unsustainable? Every bit of established economic theory out there says yes, BUT...

1. Still hasn't collapsed, despite the warnings for many decades, and despite the continued rise in spending, particularly since 1830 something when we were 0 for the only time.

2. The system will continue to be propped up by all means necessary by the 'powers that be'/the elites

3. Do we really believe those same 'elites' will allow themselves/their families to live in the 'Mad Max' world of a total economic/social collapse? I doubt it.

So then, I ask, what does this mean? Personally, I think it means we likely won't see a collapse the size of which will bring about the apocalyptic predictions made for many many years now.

Or, it could be normalcy bias talking...

[Cen-Tejas]

I don’t think there is ANY solution to federal borrowing other than A. Investor’s won’t, or just can’t, loan to the federal government anymore because of the risk or other reasons. B. An Article 5 Convention that outlaws federal borrowing and spending.

Any LEGISLATED solution by the 535 representatives and Senators just will not EVER happen. This is because most of them are utterly corrupt and are working each day for themselves, not us. 289 votes are needed in the house by TRUE republicans, not RINOS and there are only 246 of them. 67 are needed in the Senate, 13 of which would have to be democrats. Ain’t happening.

So, the only REAL change will come IF and only IF the federal government is absolutely upside down broke and busted and OVERDRAWN at the banks and the millions of federal employees no longer can cash their checks..................and that day is fast approaching.

[zeestephen]

Re: “Quantitative Easing”

I read a brief article yesterday, maybe at Bloomberg.

The Federal Reserve made a “profit” of about $100 billion on QE in 2014, which it has remitted to the US Treasury.

Most of that money came from interest payments on the debt securities that the Fed “purchased.”

I'm thinking, “Hey, that's a terrific money making idea!”

The Federal Reserve should create enough money to purchase EVERY debt security in the world EVERY year!

We could fund our entire budget with interest payments from other countries.

That beats the heck out of actually selling real products and real services to those countries.

And, if any country defaults, we just “manufacture” more money, bail them out, and charge higher interest rates.

[nascarnation]

From 17m on food stamps in 2000 to 47m today.
The entitlement army marches forward to vote for Democrats!

[Gaffer]

Did you ever read where the Federal Reserve submitted to an OUTSIDE independent audit of their books? Fed releases their own internal audits all the time about how rosy things are - that don’t make it so.

Obama and GM claimed they paid of the bailout funds but didn’t tell about how they just traded that for some other kind of debt. They didn’t tell us how they repaid the premium bond holders in that bailout and forced agreement, either.

[zeestephen]

Re: “Over the past 20 years, federal spending grew 63 percent faster than inflation.”

From memory:

The GOP has controlled one or both Houses of Congress for 16 of those 20 years, and has held the White House for 8 of those 20 years.

[Mr. Jeeves]

So then, I ask, what does this mean? Personally, I think it means we likely won't see a collapse the size of which will bring about the apocalyptic predictions made for many many years now.

You are right. And given that a fair portion of the debt is future entitlement payments to "little people", those little people can expect a well-disguised 95% haircut in the value of those promised payments, while the system grinds on, unaffected.

[zeestephen]

I wish the authors of articles like this would use more helpful statistics.

Things like “median family income” and “percentage of GDP” are just too nebulous.

I'd like to see government spending (federal, state, municipal) ALWAYS expressed in terms of constant US dollars spent per capita.

And the same procedure for tax revenues collected and deficit spending and government debt, all of it ALWAYS expressed in constant US dollars per capita.

That would give us a much cleaner historical perspective on these issues.

[huckfillary]

Balancing the budget would be a piece of cake for anyone really interested in the job. It’s all a matter of simple arithmetics, not advanced calculus. Watch. If you’re spending $500 billion more than you’re taking in, you simply spend $500 billion less. You see how easy that is?

[stevem]

In 2014, federal spending reached $3.5 trillion, and the one-year deficit was $486 billion.

I think the national debt in 2014 went up by something like $1.1 trillion. That suggests the $486 billion is a bogus number.

[SkyPilot]

And stocks have risen to ridiculous, illogical new highs, because $4.5 Trillion in QE giveaways.

ObamaCare. Out of control entitlements. A world gone made, with a new World War possible. Crazy time to be alive.