Over the past two Mondays, President Barack Obama doubled and tripled down on his notion that spending, and specifically welfare spending, is not the problem that faces the nation. Unfortunately, reality is just a bit different.
Two weeks ago in a press conference, Obama said that raising the debt ceiling was merely a vehicle to pay the bills already accrued by Congress, and that not unconditionally raising the debt ceiling was something akin to an abomination in the eyes of the Founding Fathers. He also implied that the spending was mostly the responsibility of the present and immediate-past Congresses.
There is relatively little spending that is subject to the annual budget and appropriations process, which is termed “discretionary” spending. This includes the majority of non-income transfer, or if you will, non-welfare spending by government. In FY2007, the last year the Republicans controlled the bulk of appropriations, “discretionary” spending was $1,042 billion. By FY2012, that grew to an estimated $1,289 billion using the Congressional Budget Office’s August 2012 Budget and Economic Outlook, an annual increase of a bit over 4.3%.
Meanwhile, “mandatory” spending, which exists outside the annual budgetary/appropriations process and is mainly income-transfer payments, exploded from $1,450 billion in 2007 to $2,053 billion in FY2012, an annual increase of 7.2%. Most of this increase came as part of the 2009 “stimulus” package sought by Obama. To be sure, the current and past Congress added their own bits, but it pales in comparison to what previous Congresses committed us to spend.
The shift of federal spending to wealth transfer payments, though accelerated during the Obama administration, is not a recent phenomenon. Daniel L. Thornton, a vice president and economic adviser at the Federal Reserve Bank of St. Louis, wrote a report last month that demonstrates that there is a 42-year issue with spending money, specifically on wealth-transfer programs, that taxes couldn’t cover. In short, only spending on wealth-transfer program is higher as a percentage of GDP now than in 1970, while both defense and non-defense/non-welfare spending are down significantly.
If there is a spending, taxing and borrowing situation the Founding Fathers saw as an abomination, it is the funding of peacetime government operations through debt. Before the Great Depression, as a rule, the federal government ran deficits only in wartime. Since then, there have been only a handful of years where there has been a surplus that was not entirely due to the actions of the various “trust funds” the government maintains, and none since the Eisenhower administration.
In his inauguration address last Monday, Obama further pushed the notion that Social Security, Medicare and Medicaid represent a “strengthening” of the country. That’s funny – I don’t remember Nikola Tesla using the hope of a Social Security-funded retirement to pursue the dream of alternating current, or Henry Ford using the backstop of government-run health care should he fail to turn Ford Motor Company into an automotive powerhouse, or any of the other late-19th century/early 20th century visionaries using individual welfare, or indeed federal corporate welfare, to succeed.
It also ignores the fact that we simply can’t pay for the welfare state. During Obama’s first term, two of the three Social Security/Medicare programs that don’t have automatically-increasing sources of funding, Social Security’s Old-Age and Survivors’ Insurance and Medicare’s Hospital Insurance, began running cash deficits years ahead of schedule. The third, Social Security’s Disability Insurance, began the last stage of collapse by drawing from its trust fund principal.
It will just get more expensive to run these welfare programs, as well as the various means-tested welfare programs. Assuming the two Social Security programs have their finances combined, the Treasury will need to come up with approximately $5 trillion it does not have just to get the programs to their projected 2033 exhaustion date. Meanwhile, Congress passed a permanent Medicare “doc fix” at the beginning of the year to eliminate a previously-legislated massive cut in Medicare payments to doctors the Medicare trustees had been counting on to get the Hospital Insurance trust fund to its previously-projected 2024 exhaustion date.
Further, by the mid-2020s, the government will be spending more on just Social Security than it spends on every discretionary program. That is, the cost of every soldier, every fighter, every bridge, every air-traffic controller, every meat inspector, et al, will be less than the cost of Social Security.
The proper thing to do in this situation is to do what states have done when taxes come in weaker than expected and expenditures grow more than expected – repair the budget by cutting spending. In fact, Wisconsin has done that no less than 6 times since 2001. Unfortunately, the general inclination of the DC crowd to spend more than they take in is merely exacerbated by the lack of a Congressional budget the last three fiscal years.
To paraphrase James Carville, former Bill Clinton campaign adviser, “It’s the spending, stupid.” Specifically, it’s the welfare spending.
Eggleston is a lifelong Wisconsinite who lives in Oak Creek. He was one of the original conservative bloggers in Wisconsin, starting No Runny Eggs in 2005. You can now follow him on twitter @steveegg
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