This year’s election is about the economy. The next president’s
chief challenge will be to cut federal spending and reduce
government debt.
Republicans are posturing as the party of fiscal responsibility,
but they continue to protect their sacred cows. Unless the GOP is
willing to slash corporate welfare and cut unnecessary military
outlays, Republicans don’t deserve to be taken seriously when they
talk about fiscal responsibility.
The two major parties are debating austerity versus growth. The
president argues that one more government “stimulus” package might
make a difference. Yet from 2009 to 2011 Washington ran up a
combined deficit of $4 trillion. The deficit this year is expected
to run about $1.2 trillion. If that isn’t stimulus, what is?
Today the national debt is $15.7 trillion—almost a 50 percent
increase since January 20, 2009, when President Barack Obama took
office. Despite the president’s claim to be a repentant fiscal
sinner, his budget shows that he’s the economic equivalent of the
temperance activist who hits the bottle every night.
The Congressional Budget Office warns that if Washington stays with
its current policies—no new big spending programs, expiration
of the Bush tax cuts in January—Uncle Sam will run another $3
trillion in red ink over the coming decade. But if Congress passes
the president’s latest budget proposal, the combined deficit
increase will be $6.4 trillion over the next ten years.
Even this estimate is too optimistic, however. Since when is there
good news in Washington? The CBO offers an “alternative fiscal
scenario” which assumes that Congress acts like, well, Congress.
Then the added red ink over the next ten years will total $11
trillion.
Today the national debt is 100 percent of America’s GDP. This
compares to about 84 percent for Europe as a whole.
The CBO doesn’t count the money technically borrowed by the
Treasury Department from the Social Security administration, even
though the money will have to come from somewhere to pay promised
benefits. So according to the CBO, the debt to GDP number is “only”
73.2 percent. It averaged 37 percent over the last 40 years.
The “baseline” projection drops that to 61 percent in 2022. The
president’s budget takes it to 76 percent. The more realistic
fiscal alternative raises it to 93 percent. But the future is worse
under all scenarios. The worst projections see it doubling to about
180 percent by 2035.
Greece peaked at around 143 percent.
Yet even these scary estimates are too optimistic. The federal
government continues to rack up future liabilities that have yet to
be counted. The Federal Housing Administration could join Fannie
Mae and Freddie Mac as a fiscal black hole. Taxpayers face billions
in unfunded liabilities for the Pension Benefit Guaranty
Corporation, which covers retirement plans at failed companies.
Washington has trillions of dollars in unfunded pensions and health
care obligations to its employees. States have trillions of dollars
more in debts and similarly unfunded pension and health care
liabilities. If ObamaCare survives in the Supreme Court, the
legislation’s perverse incentives will drive up federal health care
outlays. One estimate figures this “reform” will end up costing an
incredible $17 trillion.
The wars in Afghanistan and Iraq, which so far have spent $531
billion and $804 billion, respectively, also operate as unfunded
liabilities. Thousands of veterans will require expensive care for
the rest of their lives, long after the conflicts are officially
over. The costs of the Iraq war alone could hit $3 trillion or
more. The longer American troops remain in combat in Afghanistan,
the higher that war’s ultimate expense.
Social Security and Medicare have a total unfunded liability of
around $117 trillion. Medicaid has promised trillions of dollars in
additional benefits. The Obama administration uses lower official
numbers, but it double counts ObamaCare “cuts” in Medicare which
are supposed to be used to pay for expanding access to health
insurance, and, warn program actuaries, aren’t even likely to
occur.
At current growth rates, these three programs alone will consume
18.4 percent of America’s GDP in 2050. That’s above the average for
the entire federal government in recent decades. My Cato Institute
colleague Michael Tanner warned that “if there is no change to
current policies, by 2050 federal government spending will exceed
42 percent of GDP. Adding in state and local spending, government
at all levels will consume nearly 60 percent of everything produced
in this country.”
The best measure of current indebtedness may come from economist
Laurence Kotlikoff. Add in all the prospective liabilities and he
figures America’s real public debt at about $211 trillion. That’s
14 times America’s official national debt—and GDP!
When politicians want to expand their power and stampede the
public, they proclaim a faux “crisis.” Rising indebtedness is a
genuine “crisis.” We can’t afford all of the government that we
have, let alone all of the government that we are projected to get.
Yet no one in Washington is truly serious about fiscal
restraint.
Few Democrats want to control spending. The president would more
than double the amount of red ink over the coming decade—and
that’s his “responsible” budget offered while facing an election
with the public demanding action to limit spending. If he’s
reelected, he likely will revert to his deficit default, which is
ever more red ink.
Most congressional Democrats also believe that Uncle Sam is
spending too little, not too much. To the extent that they worry
about the deficit, their solution is to hike taxes. Yet most of the
dramatic increase in the national debt since 2001 is due to
spending hikes, not tax cuts. And even if the Bush tax cuts are
preserved, within a decade Americans will be devoting a greater
percentage of the GDP to taxes than the last 40-year average. The
growing debt foreseen by the CBO primarily results from rapidly
increasing outlays.
Presumptive Republican Party nominee Mitt Romney talks tough on
spending while proposing few specific reductions—he doesn’t
want to anger anyone by targeting their favorite programs. He also
promises to greatly increase military outlays, adding more than $2
trillion over the next decade.
At least the House Budget Committee under Republican Chairman Paul
Ryan passed a budget package including across-the-board cuts meant
to save $310 billion over the next decade. Democrats wanted to cut
far less and preferred to squeeze more money out of Americans
through higher taxes. The GOP plan still is too little, but at
least it is a start. However, it is designed to protect Republican
sacred cows.
The Republican legislation actually would increase military
outlays. Rep. Ryan expressed his concern that automatic
sequestration would risk “disproportionately decimating our
military.” House Speaker John Boehner, who has proposed additional
spending reductions elsewhere, similarly insisted on stopping
“these automatic cuts from hollowing out our defenses.”
At the same time the Republican House joined the Democratic Senate
in reauthorizing one of the great engines of corporate welfare, the
Export-Import Bank. And some House Republicans have begun
campaigning to overturn earmarks, perhaps the most abused form of
pork, which has come to symbolize political corruption.
The political problem caused by such inconsistency should be
obvious enough. A Bloomberg News article began: “A U.S. House panel
voted to cut spending on food stamps, health insurance and other
aid for the poor to avoid planned cuts in defense spending.” The
kind of cuts required to put America back on a responsible fiscal
path are massive. The only way to make sizeable reductions in
programs—100 percent cuts in many cases!—is to create a
sense of shared sacrifice, the belief that no one’s favorite
program is exempt from scrutiny.
The point is not that programs nominally aimed at the poor should
not be scrutinized. As Charles Murray demonstrated a quarter
century ago, government welfare has failed to lift people out of
poverty; in fact, all too often it has trapped them, turning them
into permanent government dependents.
Welfare works little better today despite its high cost. Michael
Tanner reported that Washington alone spends about $670 billion
annually on 126 different anti-poverty programs. Toss in state and
local outlays and the total comes to around $1 trillion, or nearly
$62,000 per poor family of three. Since President Obama took office
welfare expenditures have jumped 41 percent, nearly $200 billion a
year. Tanner observed, “Throwing money at the problem has neither
reduced poverty nor made the poor self-sufficient.”
However, it is not enough to go after programs for the poor. Doing
so isn’t fair. Nor is doing so going to solve the debt crisis.
The point is not that programs nominally aimed at the poor should
not be scrutinized. As Charles Murray demonstrated a quarter
century ago, government welfare has failed to lift people out of
poverty; in fact, all too often it has trapped them, turning them
into permanent government dependents.
Welfare works little better today despite its high cost. Michael
Tanner reported that Washington alone spends about $670 billion
annually on 126 different anti-poverty programs. Toss in state and
local outlays and the total comes to around $1 trillion, or nearly
$62,000 per poor family of three. Since President Obama took office
welfare expenditures have jumped 41 percent, nearly $200 billion a
year. Tanner observed, “Throwing money at the problem has neither
reduced poverty nor made the poor self-sufficient.”
However, it is not enough to go after programs for the poor. Doing
so isn’t fair. Nor is doing so going to solve the debt crisis.
Other major beneficiaries are KBR Inc., General Electric, Pemex,
and Caterpillar Inc. The foreign recipients of Ex-Im’s largesse are
similarly anything but needy. Noted my Cato Institute colleague
Sallie James: “the Bank typically has made its loans, guarantees,
and insurance to countries such as South Korea, China, Mexico, and
Brazil—countries that have had little difficulty in
attracting private investment on their own.”
With ExIm’s charter expiring at the end of May (and close to
hitting its statutory lending limit of $100 billion), the GOP had
an opportunity to act on its rhetoric. Although Bank supporters
claimed that the institution made money, that result required
fixing the numbers.
Jason Delisle and Christopher Papagianis of Economic Policies for
the 21st Century explained: “the Ex-Im Bank’s long-term loan
guarantee program actually provides guarantees at a loss for
taxpayers, not a profit. Moreover, this analysis reveals that the
Ex-Im Bank’s loan guarantees are made at sufficiently generous
terms that borrowers receive subsidies of about one percent of the
amount borrowed,” which comes to more than $200 million on the $21
billion in loans to be extended this year. Worse, while the Bank’s
formal cost is small compared to other business subsidies, the
organization diverts credit from the general
marketplace—where it could go to small businesses, students,
competing exporters, domestic producers, or others—and
channels it to a lucky few traders, who account for about two
percent of U.S. exports.
This is supposed to create jobs? Observed the Wall Street Journal:
“That’s job creation, French-style. The Ex-Im Bank extends
taxpayer-backed loans, loan guarantees and insurance to the clients
of some of America’s largest corporations, all of which have access
to private financing.” More important, Ex-Im can only redistribute
jobs, shifting credit away from less economically efficient uses to
more politically favored ones. The fact that other governments
mulct their taxpayers in similar ways to subsidize their exporters
is no reason for America to do so. Observed Sallie James: “By
diverting resources from the private sector, the bank’s activities
produce a less-efficient economy and lower general standard of
living than would occur in a free market for export finance.”
Instead of telling Big Business to do its own borrowing, the GOP
House leadership agreed to a “compromise”—reauthorizing the
Bank and gradually expanding its total exposure cap to $140
billion. It wasn’t just the GOP leadership which caved; 147
Republican House members also voted to subsidize corporate America.
Most Republican Senators, such as Lindsey Graham of South Carolina,
also backed Ex-Im.
One area where Republicans have been shamed into better behavior
was pork, most notably earmarks. Despite GOP claims of fiscal
responsibility, Republican legislators long used taxpayer money to
get reelected. In fact, earmarks peaked at about $35 billion under
the Republican Congress during the Bush era.
Although representing just one percent of the budget, earmarks
reflect a deeper corruption, the shameless use of federal outlays
to win reelection. Earmark defenders argued that earmarks merely
shift power to award money from bureaucrats to legislators.
However, in theory, at least, bureaucrats must follow some
non-political criteria in distributing federal largesse. Lawmakers
make no pretense of doing so. Two criteria typically loom large:
contracts for campaign supporters and projects in a member’s
district/state.
To its credit, last year the new Republican House banned earmarks.
However, Rep. Mike Rogers of Alabama recently told the GOP
leadership that the majority of members wanted to lift the
prohibition. He was distressed that “right now we are prohibited
from advocating for anything for our states,” meaning stealing
taxpayer money to buy votes.
More recently, Rep. John Culberson of Texas—who chairs the
military construction appropriations subcommittee—endorsed
earmarks. He believed a particular military facility is more
important than did the Pentagon. “I can’t move it,” he admitted:
“it’s just nuts.” Rep. Rob Bishop of Utah complained that
legislators couldn’t do things like transfer land to a city. He
suggested giving earmarks a new name: “In Utah we call them
‘line-item’ spending or directed spending’.”
Well, that certainly would take care of the problem.
So far the House leadership appears to be standing behind the ban.
But Sen. Thad Cochran (R-Miss.) said he views the earmark ban as
temporary. If the GOP holds its House majority in the November
vote, it’s hard to predict what will happen next year.
Government spends too much. Far too much. The president and
Congress seem intent on turning America into Greece.
To avoid that fate, federal outlays must be slashed. Republicans
have promised to do so, but it’s not enough to cut money for
welfare and social services. Military
expenditures—essentially foreign aid for allied
governments—also need to be reduced. Corporate welfare like
the Export-Import Bank should be eliminated. Pork, too, should be
ended. If the GOP isn’t willing to cut wasteful federal outlays
across the board, it won’t solve America’s budget crisis and won’t
deserve the vote of the American people.
