October 19, 2005

October 19, 2005 | WebMemo on Federal Budget

Senate Leader Defends Spending Spree Rather Than Enacting Reforms

A recent Heritage Foundation report detailed the 33 percent expansion of the federal government since 2001 that has pushed federal spending to nearly $22,000 per household-the most since World War II.[1] This report, based largely on government data, analyzed recent large across-the-board increases in entitlement and discretionary spending, as well as the recent surge in pork projects. Rather than take action to pare back runaway spending, Senate Majority Leader Bill Frist's office responded with a memorandum to Senate staff defending the recent spending spree with assertions that do not stand up to close scrutiny.[2] This paper refutes that memo's assertions.

Assertion #1 : "[F]ederal spending has grown these last 5 years, but for very clear and understandable national security reasons."

Reality: Defense is responsible for less than one-third of the $610 billion increase in spending since 2001. Rather than contain new spending to vital national security priorities, lawmakers have increased spending on education by 100 percent, international affairs by 94 percent, housing and commerce by 86 percent, community development by 71 percent, health research and regulation by 61 percent, and veterans' benefits by 51 percent, just to name a few examples. Perhaps most egregiously, the number of annual pork projects jumped from 6,333 in 2001 to 13,999 this year.

Assertion #2: "If it were not for this 1 percentage point increase in funding for our national security between 2000 and last year, federal spending overall would be a remarkable 19.2 percent, well below the previous two decades."

Reality: This point seems to recommend excluding the costs of the war on terrorism from spending analyses. But this spending did not occur in a vacuum. During World War II, lawmakers reprioritized their budgets and cut non-war spending in half-even eliminating many of President Roosevelt's New Deal programs. During the Korean War, Congress cut one-fourth of all non-war spending in just one year.[3]> Rather than set priorities and offset important wartime spending, today's lawmakers simply ask budget watchdogs to pretend that such spending is not there. If only taxpayers could also pretend that the coming IRS bills for such spending are not there either.

Assertion #3: "Federal spending as a share of our economy in 2005 represents about 20.2 percent. How does this ratio-federal spending to the size of our economy-compare to previous periods? For the decade of the 1980's, federal spending averaged 22.2 percent of GDP-a whole 2 percentage points higher than last year."

Reality: There are two major differences that show why current spending totals are much less justified.

First, President Reagan inherited a bloated federal government that spent 21.7 percent of GDP, and he reduced that burden to 21.2 percent-even while fighting the Cold War and working with an often-Democratic Congress that regularly sought to increase spending further. By comparison, lawmakers in early 2001 inherited a leaner budget that, as a result of difficult decisions made by previous Congresses, had been pared down to 18.4 percent of GDP, and they promptly responded with across-the-board spending hikes that pushed spending all the way back to 20.2 percent of GDP by 2005.

Second, unlike in the 1980s, this current spending spree occurs less than three years before the first of 77 million baby boomers retires. Over the next decade, Medicare will expand by 9 percent annually, Medicaid by 8 percent annually, and Social Security by 6 percent annually. Just to keep pace with this spending, lawmakers would have to raise tax rates every year until they reached a level that is 60 percent higher than today. Lawmakers can avert this crisis only with direct and immediate entitlement reforms. Yet, so far, lawmakers have instead dug the nation's fiscal hole even deeper by creating an unaffordable universal drug entitlement in Medicare. Simply put, lawmakers went on this spending spree at the very moment the nation could least afford it.

Assertion #4: "[T]he Medicare Rx bill has become a symbol of federal spending out of control, though the actual spending from that legislation, let alone the benefits to be derived from it, have only now begun. The spending criticism of the Rx legislation falls into the category of anticipated spending, which there clearly will be, but not actual spending. And as you heard this week, the costs of the program could be significantly less than what was anticipated as increased competition in drug pricing now becomes a reality."

Reality: This point seems to defend the Medicare drug entitlement on the basis that it has not yet been implemented, and therefore no costs have yet been incurred. But if lawmakers managed to expand the federal government by 33 percent in four years even without a Medicare drug entitlement, how fast will federal spending leap once its exorbitant costs (estimated at $724 billion in the first decade alone) begin mounting on January 1, 2006? As for the claims of significant savings, they seem to have escaped the escalating cost projections coming from the Congressional Budget Office, Office of Management Budget, Medicare Trustees, and nearly all independent health economists.

Assertion #5: "It has been the increases in federal spending for the Global War on Terrorism that has been the most significant driver these last 5 years, not highway bills, not energy bills, nor a Medicare drug bill."

Reality: Again, it is odd to defend the bloated budgets of the past by describing the new layers of spending that are just now being added on top of them. Furthermore, the problems with the highway bill and the energy bill extend well beyond their total cost to taxpayers. Polls show that 71 percent of Americans are more bothered by how their taxes are spent than by the amount of taxes they pay and that the average American feels that nearly half of his or her tax dollars are wasted.[4] So it is no surprise that Americans are offended by a highway bill that diverts nearly $25 billion into over 6,000 pork projects, many of which are totally unrelated to roads. Similarly, the energy bill relied more on special-interest subsidies and tax breaks than on adequately actually addressing America's energy needs.

Assertion #6: "[N]o other industrial nation's centralized government spends less than the United States measured as a share of their economy."

Reality:Spending less money than bureaucratic, stagnant, social welfare states like France and Germany is hardly anything to brag about.

Yet the memo's assertion is actually misleading. According to the Organization for Economic Cooperation and Development (OECD), total U.S. government spending (including state and local government spending) reached 35.9 percent of GDP in 2005, which is more than was spent by the governments of Australia (35.5 percent), Ireland (35.2 percent), and New Zealand (35.1 percent).[5] Granted, the memo specifies spending by central governments, but when measuring the total economic burden of government, there is no reason to ignore other levels of government, which is why virtually no international measures do so.

Furthermore, Social Security, Medicare, and Medicaid threaten to push U.S. government spending to the same Western European levels that the Frist memo compares America favorably to.

Conclusion

The memo released by Sen. Frist's office is a signal that congressional leaders still do not grasp the depth and consequences of their historic spending spree. The federal budget expanded by $610 billion between 2001 and 2005, and lawmakers have failed to prepare the federal budget-and taxpayers-for the coming avalanche of Social Security, Medicare, and Medicaid costs. Rather than make excuses for past excesses, lawmakers should instead focus on reining in runaway spending. They should start by delaying the unaffordable Medicare drug entitlement and finally placing a moratorium on pork project spending.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Federal Budget

Show references in this report

[1] Brian M. Riedl, "Federal Spending: By the Numbers," Heritage Foundation Webmemo No. 881, October 11, 2005, at http://www.heritage.org/Research/Budget/wm881.cfm.

[2] See "Not Encouraging," Heritage Foundation Policy Weblog, October 19, 2005, at http://www.heritage.org/press/dailybriefing/
policyweblog.cfm?
blogid=0A44B83D-CED1-04B9-0C11038984748CEB
.

[3] Mitch Daniels, remarks to the National Press Club, November 28, 2001, at http://www.whitehouse.gov/omb/speeches/
natl_press_club.html
. Daniels states that non-defense spending decreased by 22 percent between 1939 and 1942 and then by 37 percent more between 1942 and 1944.

[4] See Karlyn Bowman, "Public Opinion on Taxes," American Enterprise Institute, updated April 15, 2005, pp. 12-13, at http://www.aei.org/publications/pubID.16838/
pub_detail.asp
.

[5] Data provided by the Organization for Economic C-operation and Development, at http://www.oecd.org/dataoecd/5/51/2483816.xls. The author thanks Chris Edwards of the Cato Institute for his contribution to this section.