April 28, 2004
By Brian M. Riedl
Does America have a $477 billion budget deficit because
Washington spends too much? Or because it taxes us too
Before you answer, consider the following two facts: First, federal
spending recently topped $20,000 per household for the first time
since World War II and will expand another $1,370 this year.
Second, the federal government cannot account for $24.5 billion it
spent last year.
Excessive, wasteful spending is the problem, and it should be
reined in before we talk about raising taxes.
Lawmakers from both parties certainly deserve blame for the
current spending spree. But they've been quietly assisted by a
budget process created in 1974 to maximize federal spending. Worse,
its few spending restraints have been stripped by 30 years of
clever loopholes. Taxpayers wishing to shield their hard-earned
income from Congress can expect little protection from the federal
Case in point: the absence of caps limiting total federal
Families understand spending caps. Every year, millions of
families sit down at their kitchen tables and determine how much
they can afford to spend. What they want usually exceeds what they
can afford, so they prioritize. Setting limits is never easy, yet
responsible budgeting keeps these families in the black.
State governments also understand spending caps. States that use
them, such as Colorado, have protected taxpayers' paychecks and
kept state finances in order -- even during the recent
Federal lawmakers are not bound by any such constraints. They
aren't limited to spending only what a specific cap allows or even
what they collect in taxes. Instead, lawmakers can spend as much of
your money as they wish, and either raise your taxes or pass the
costs on to future generations.
It wasn't always this way. "Discretionary" spending (i.e.,
spending that goes toward programs not considered mandatory) was
capped throughout the 1990s. Lawmakers had to set priorities and
target spending where it was most needed. Lawmakers began bypassing
caps once the budget reached balance in 1998 and abandoned them
altogether in 2002. Not surprisingly, discretionary spending has
leaped 39 percent in the past three years. Bringing the caps back
would help restore discipline in discretionary spending.
Entitlement spending has never been capped. In fact, most
entitlement programs (including Social Security and Medicare)
aren't even reviewed during the federal budget process. Lawmakers
place these programs on autopilot for several years without any
oversight or any reconsideration of their place in our national
Not surprisingly, entitlements have become the most expensive,
wasteful and fastest growing programs. They comprise two-thirds of
all federal spending, and their budgets are projected to nearly
double over the next decade. Within three decades they will require
tax increases that, in today's economy, would top $5,000 per
household. Federal spending can never be controlled if the vast
majority of spending is presumed untouchable.
Yet, rather than sensibly cap entitlement spending, lawmakers are
distracted by the idea of bringing back the Pay-As-You-Go (PAYGO)
rules from the 1990s. PAYGO mandates that any tax cut or new
entitlement be balanced by a choice of either entitlement cuts or
PAYGO's central flaw is that it restricts only the creation of new
entitlements. All current entitlements, such as Social Security and
Medicare (including the new drug entitlement), would remain on
autopilot, growing at the same rates that are currently projected
to drown the budget in red ink.
Think of entitlements such as Social Security and Medicare as fires
rapidly spreading across the federal budget. Rather than contain
these fires before they consume the entire budget, PAYGO would
merely ask lawmakers to not set any additional fires. PAYGO fiddles
while our tax dollars burn. By contrast, entitlement caps would
contain these fires.
And although current entitlement programs would be exempt from
PAYGO, the 2001 and 2003 tax cuts would not. Taxes would increase
sharply just in time to fund the exploding costs of these
Capping all federal spending -- entitlement and discretionary --
would bring the budget process closer to reflecting America's
budget priorities. Annual cap levels could be written every few
years by Congress and the president, or determined by a formula
such as the inflation rate plus population growth (with exceptions
for major emergencies).
With the federal budget crowding out the family budget, it is time
for lawmakers to treat tax dollars as carefully as the taxpayers
who labor to earn them.
is Grover M. Hermann Fellow in Federal Budgetary Affairs in the
Thomas A. Roe Institute for Economic Policy Studies at The Heritage
Distributed Nationally on the Knight-Ridder Tribune Wire
Does America have a $477 billion budget deficit because Washington spends too much? Or because it taxes us too little?
Brian M. Riedl
Grover Hermann Fellow in Federal Budgetary Affairs
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