After increasing spending 45 percent since 2001,
President Bush and Congress are finally acknowledging that
government growth is out of control. Yet despite some small steps
in the right direction, they are not close to reining in
President Bush began the year proposing a 3.5 percent increase in
discretionary spending (excluding Iraq and Hurricane Katrina
relief, which are funded by emergency bills), with most of the
increase concentrated in defense. While the House of
Representatives agreed to this growth rate, senators passed a
budget resolution relying on gimmicks to push the increase to 5.5
percent. Strong White House leadership finally persuaded the Senate
to accept the lower growth rate.
Of course, there are no permanent victories in Washington.
Lawmakers now writing the spending bills are adding spending by
employing the common loophole of shifting about $10 billion from
defense into domestic spending, which will then be replenished by
adding $10 billion to the next Iraq emergency spending bill this
These "emergency" bills have become the latest way to bust the
budget. In April, senators larded up President Bush's $92 billion
emergency bill for Iraq and Katrina relief with an additional $14
billion in wasteful spending. The Senate's "emergencies" included a
massive farm bailout, highway spending as far away as Hawaii, and
the infamous "railroad to nowhere" plan to relocate a running
Mississippi rail line a few miles north to make room for
Vegas-style casinos. Only President Bush's firm veto threat finally
forced senators to drop the additional $14 billion.
The new focus on limiting discretionary spending growth is
welcome, yet lawmakers continue to ignore the elephant in the room:
entitlements. These programs are expanding $100 billion per year
and rendering it nearly impossible to rein in spending. The
president's calls to modestly trim the growth rate of Medicare and
farm subsidies fell on deaf congressional ears, dooming taxpayers
to rapid entitlement growth that, if not corrected, would
eventually consume the entire federal budget.
Despite high spending, President Bush may meet his goal of halving
the budget deficit by 2009 - and for two reasons: First, the
president employed a colorful definition of "halving the deficit"
that would allow him to declare victory even if the deficit merely
drops from $413 billion to $340 billion. Second, surging tax
revenues are closing the deficit. The 2003 tax cuts, scapegoated
for every economic imperfection, were followed by the largest tax
revenue increase in half a century. At a projected 18.3 percent of
gross domestic product (GDP), 2006 tax revenues will actually be
above the historical average. So the deficit is shrinking because
Americans are paying more taxes, not because lawmakers are cutting
One reason lawmakers fail to cut spending is because the outdated
budget process does not force them to do so. There will always be
pressure from various interest groups to spend, so lawmakers need
enforceable spending caps to help them set priorities and make
trade-offs. They allowed the successful discretionary spending caps
of the 1990s to expire in 2002, leading to 9 percent annual
discretionary spending hikes.
Senate Budget Committee Chairman Judd Gregg's Stop Over-Spending
(S.O.S.) Act would recreate these discretionary spending caps and
also force lawmakers to reduce the budget deficit each year by
slowing the growth of runaway entitlement spending. The Senate's
big spenders vehemently oppose Gregg's legislation, indicating the
strong impact it would have.
An even better reform would cap the total growth of government at
the inflation rate plus population growth. Lawmakers could still
increase each program, though larger increases would have to be
offset by reducing lower-priority programs. Closing all loopholes,
any emergency spending would require a two-thirds super-majority.
This commonsense reform would help lawmakers save more than $3
trillion over the next decade - enough to balance the budget, make
the tax cuts permanent, and even finance the beginning of Social
Don't hold your breath.
Why is spending restraint so important? Because, despite reducing
tax rates, President Bush's and Congress' historic spending spree
is laying the groundwork for the largest tax increase in American
Without a single veto, President Bush has overseen the largest
spending spree since Franklin D. Roosevelt sat in the Oval Office.
Surprisingly, new defense and homeland security costs account for
less than one-third of all new spending. Even non-defense spending
is expanding twice as fast as it did under President Clinton.
These guns and butter budgets are virtually unprecedented. During
World War II and the Korean War, Presidents Roosevelt and Truman
cut non-defense spending by 35 percent and 25 percent,
respectively. Yet during the war on terrorism, lawmakers enacted
the most expensive education, agriculture and highway bills ever,
and created an $8.7 trillion Medicare drug entitlement. Since 2001,
education spending is up 137 percent, international spending is up
111 percent, and health research and regulation spending is up 78
percent. Despite cries of "mean-spirited cuts," even anti-poverty
spending just reached a record 3 percent of GDP.
In sum, 2006 federal spending will reach $23,760 per household -
the highest inflation-adjusted level since World War II, and nearly
$5,000 higher than five years ago. And that figure is increasing
$1,000 annually. Unless spending is pared back, within a decade
balancing the budget alone could require a $7,000 per household tax
These lawmakers have grown addicted to playing Santa Claus with
your tax dollars. Even Republican lawmakers routinely send press
releases bragging about "record spending increases." Senate
Majority Leader Bill Frist excitedly writes that the new Medicare
drug entitlement is increasing Americans' dependency on the federal
government. Pork-barrel projects increase 600 percent, federal
auditors cannot locate $24.5 billion spent in 2003, Washington runs
342 overlapping economic development programs, and government
credit cards are spent on football tickets and prostitutes. And
where is Congress? Busy naming two new government buildings after
Sens. Arlen Specter and Tom Harkin.
As stated earlier, lawmakers are ignoring the coming entitlement
tsunami. While America has accumulated a $5 trillion debt since its
founding, Social Security and Medicare face an impending shortfall
of $36 trillion.
The problem is simple: On Jan. 1, 2008 - just 547 days from now -
the first of 77 million baby boomers will receive their first
Social Security check. The combination of a large boomer population
and longer life spans will push Social Security and Medicare
spending well beyond what the remaining taxpayers can afford. When
Social Security was created in 1935, 42 workers supported each
retiree. Since then, the ratio has steadily dropped down to just
3.3 workers per retiree today. By 2030, only two workers will
support each retiree. That means a married couple in 2030 will have
to support themselves, their children - and the Social Security and
Medicare benefits of their very own retiree.
Medicare faces the same demographic challenge as Social Security.
The additional problem of rising health care costs, however, leaves
the Medicare shortfall six times larger than that of Social
Security. Since Medicare does not cover long-term care such as
nursing homes, millions of seniors will be forced into Medicaid,
pushing those costs to stratospheric levels, too.
Combined, Social Security, Medicare and Medicaid spending will rise
from 8.4 percent of GDP today to 18.9 percent of GDP by 2050 (the
entire 2006 federal budget is 20 percent of GDP). Unpalatable
options for funding these massive new costs include: (1) raising
taxes every year until they reach $11,000 per household above
today's level (adjusted for inflation and rising incomes); (2)
eliminating every remaining federal program except defense within
20 years; (3) continuing to finance these entitlements with budget
deficits, which would raise the national debt to 400 percent of
GDP, necessitate enormous interest payments, and risk a major
Fortunately, there's a fourth option: Fundamentally reform Social
Security, Medicare and Medicaid. And do it soon to give baby
boomers time to adjust their retirement financial planning
What have our elected officials done to address this impending
crisis? Absolutely nothing. Every year reform is delayed, 77
million baby boomers move a year closer to retirement, and total
reform costs increase by about $1 trillion. Timid politicians fear
voters will punish anyone who courageously tries to reform these
popular programs. So liberal lawmakers pretend the Social Security
Trust Fund will pay all benefits until 2040 (lawmakers already
spent every cent of it), and conservative lawmakers pretend that
tax revenues from a growing economy can fund these costs (not even
close). The bipartisan consensus: Ignore the problem and let the
next generation deal with it.
Actually, that's not the whole story. Lawmakers in 2003 poured
gasoline on the fiscal fire by creating a new $8.7 trillion
Medicare drug entitlement - with no plan to pay for it. The largest
government expansion since the Great Society, Medicare's drug
entitlement faces a long-term shortfall more than double the entire
Social Security shortfall.
Lawmakers could have limited this program to low-income seniors for
a fraction of the cost. Instead, they created a universal
entitlement to buy the most votes at election time. The
intergenerational irresponsibility is appalling: Lawmakers enjoy
temporary popularity, the next generation receives an $8.7 trillion
If 2006 resembles past election years, lawmakers will continue
talking up "fiscal responsibility" while bragging about all the new
spending they brought home. They will talk about freezing
"non-defense discretionary spending" without mentioning the
gimmicks they used to hike that spending elsewhere. They will give
lip service to budget process and pork reform without actually
enacting it. They will congratulate themselves for a reduced
deficit that resulted more from your bigger tax payments than any
spending restraint from them. They will not, however, talk about
the ticking time bomb in Social Security, Medicare and Medicaid.
Why spoil the party?
is Grover M. Hermann Fellow in Federal Budgetary Affairs in the
Thomas A. Roe Institute for Economic Policy Studies at The Heritage