January 9, 2009 | WebMemo on Federal Budget
Congress and President-elect Barack Obama have set their sights on a massive economic stimulus bill crammed full of spending projects intended to "jolt" the economy into recovery. By some counts this package may reach $1 trillion, or nearly 85 percent of the total of all budget bills passed last year.
This is not the way to spur economic recovery. Even Obama recognizes he faces a difficult challenge: how to keep the stimulus focused on short-term deficit spending and avoid a huge, long-term expansion of the federal government--and with it a dramatic increase in the staggeringly large unfunded obligations due mainly to Social Security, Medicare, and Medicaid. To deal with that challenge, Obama should work with fiscally responsible Members of Congress to include four key budget reforms in any stimulus legislation:
Spending and Deficits Hit New Records
Federal spending is projected to top 25 percent of GDP in 2009, according to the Congressional Budget Office (CBO), the highest it has been since World War II, and that is before any stimulus legislation. The deficit is projected to reach $1.2 trillion by the end of this year, and any stimulus would likely push the deficit to more than $1.6 trillion.
Similar large deficits are projected to continue into the future. Such deficits are a loud alarm to which policymakers must listen: Federal spending is out of control. But even they ignore the deeper fiscal problems of Social Security and Medicare. These programs together, not even counting Medicaid, have an unfunded obligation that is equivalent to a mortgage of $43 trillion. Future generations will be forced to pay for those obligations through higher taxes unless the programs are modernized.
While making the case for his massive short-term stimulus proposal, President-elect Obama acknowledged the threat entitlements pose to the economy, noting, "If we do nothing, then we will continue to see red ink as far as the eye can see." He called budget reform "an absolute necessity," and he has pledged to confront the problems from Social Security and Medicare in his budget.
Budget writers in Congress are also alarmed. Senate Budget Committee Chairman Kent Conrad (D-ND), called the deficit "jaw dropping," and House Budget Committee Chairman John Spratt (D-SC) was suffering "sticker shock." They and their ranking member counterparts have encouraged lawmakers to tackle the long-term budget problems posed by these entitlement programs. Conrad and Senator Judd Gregg (R-NH) have urged Congress to link the stimulus with action to address the long-term budget crisis.
If President-elect Obama is serious about fiscal responsibility, he and responsible Members of Congress must insist on budget reforms to prevent further deterioration of an already alarming long-term budget problem and require action to tackle these challenges directly. To that end, he and responsible lawmakers should insist on these four key budget reform measures being included in any stimulus package:
Since President-elect Obama is intent on signing a massive spending bill, he must insist that it does not result in huge permanent government programs and thus potentially trillions of dollars in new burdens on our children and grandchildren. He must demonstrate his commitment to tackle the long-term entitlement challenges by working with Members of Congress to build sound budget process reform measures into the stimulus legislation. If he does not do so, the young Americans who voted for him should question how serious he is about protecting their financial future.
Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Estimated FY 2008 appropriations $1.154 trillion, prior to all enacted supplementals. Office of Management and Budget, "Budget of the United States Government Fiscal Year 2009: Historical Tables," Table 5.4, at www.whitehouse.gov/omb/budget/fy2009/hist.html (January 9, 2009).
See Brian M. Riedl, "CBO Budget Baseline Shows Historic Surge in Spending and Debt," Heritage Foundation WebMemo No. 2193, January 7, 2009, at http://www.heritage.org/research/budget/wm2193 (January 9, 2009).
Montgomery, "Congress Urges Spending Restraint," The Washington
Post, January 8, 2009, at http://www.washingtonpost.com/wp-dyn/content/article/2009/01/07/AR200901070115
6.html?hpid=topnew (January 9, 2009.)
Senators Kent Conrad and Judd Gregg, "A Fiscal
Battle on Two Fronts," The Washington Post, January 5, 2009,
dyn/content/article/2009/01/04/AR2009010401436_pf.html (January 9, 2009).
Alison Acosta Fraser, "Federal Budget Should Include Long-Term Obligations from Entitlement Programs,"Heritage Foundation Executive Memorandum No. 1004, June 22, 2006, at http://www.heritage.org/Research/Budget/em1004.cfm.
 Alison Acosta Fraser, "The SAFE Commission Act (H.R. 3654) and the Long-Term Fiscal Challenge," testimony before the Committee on the Budget, U.S. House of Representatives, June 25, 2008, at http://www.heritage.org/Research/Budget/tst062508b.cfm.
 J. D. Foster, Ph.D., "Obama to CBO Revenue Baseline: Nuts--and He's Right!," Heritage FoundationWebMemo No. 2019, August 11, 2008, at http://www.heritage.org/Research/Budget/wm2019.cfm.
 Stuart M. Butler, Ph.D., Alison Acosta Fraser and Other Authors, "Taking Back our Fiscal Future," Heritage Foundation White Paper, March 31, 2008, at http://www.heritage.org/Research/Budget/wp0408.cfm.