Spending by the Federal Government (not just social security)

Great Debates
1

President Bush recently submitted a $2.57 trillion budget to Congress for FY2006. Based on a population of 295.5 million, that comes to just a tad under $8700 per person.

The federal government was not always this size (and yes, for purposes of this argument, I’m equating government “size” with spending). While trying to find some figures for this post, I came across this website giving some history of the spending of the federal government over the last century.

Using the facts from that website (which I’ll be the first to admit that I can’t vouch for the accuracy of), the federal government has grown tremendously over the last hundred years. In 1923, fedreal spending was negligible (maybe $20 billion?) in 2003 dollars (i.e. even after indexing for inflation). At the height of World War II, the Feds spent about 900 billion dollars (based on my estimation of the graph) in 2003 dollars, which quickly dropped back down to about $250 billion after the war was over.

Since then, however, spending has increased again over and over. Of course, as we all know, revenue has not kept pace with expenditures, causing the current national debt to rise to over $7 trillion dollars. The debt per person in the U.S. has risen steadily from about $11,000 per person in 1950 (again, as expressed in 2003 dollars) to over $25,000 per person today.

The largest portion of the federal budget today goes to social programs. The spending increases for social programs has far exceeding the spending increases for other types of programs (defense, etc.) over the years.

My questions, are as follows:

  1. Are we, as a nation, overtaxed?

All of these programs, obviously, cost money. Before 1913, there were no direct income taxes. The government made most of it’s money on tarriffs (If I’m wrong on that, please feel free to correct me) and other such fees. After the passage of the 16th amendment, Congress authorized an income tax which, at first, only affected the top earners and then only at a small percentage. Since then, the tax rate has more or less grown steadily (barring certain aberations). We are now at the point where the top earners pay about a third of their earnings in taxes. In 1953, federal revenues were about $500 billion (2003), whereas today they are about $2 trillion. And yet, we’re still running defecits.

  1. Do we spend too much?

We have many, many programs in the federal government today, far more than we had before World War II and even more than we had in the 1960s. We enjoy the benefits of these programs today. However, some of them (Social Security, Medicare, etc.) are very expensive with costs that are expected to balloon over the next 50+ years. Education, Veterans affairs, regulatory agencies, various other social programs, pork spending, have all gone up tremendously. Sure, all of these programs provide benefits that we enjoy. But have we promised more to ourselves than we can afford to pay?

  1. Assuming that we agree that (1) we are overtaxed (and yes, I understand that not everyone may agree on this) and (2) we cannot afford to keep spending what we are spending, what do we do?

Obviously, we would need to cut spending. But the question, of course, is where? What programs could we cut? And how much would we have to cut them in order to bring some order to our financial house?

I understand that everyone has there sacred cows and that no solution will make everyone happy. My personal feeling is that “promised” monies (i.e. Social Security, for example) should be the last things slashed. But can we get away with eliminating a good deal of our discretionary spending?

  1. If we don’t change our spending habits, and don’t increase taxes, what will happen to the country financially (say 50 to 100 years from now)? How will the debt affect the average everyday man, woman and child?

I know that this is a lot for just one thread, but I wanted to try to lay it all out on the table and see how the discussion goes.

Zev Steinhardt

2

  1. A lot of Europeans will look at U.S. tax rates and decide we’re undertaxed. The American model of a “safety net” has a lot more holes in it than the European model.

  2. We’ve promised ourselves more than we’re willing to pay. As a result we have programs that aren’t funded enough to be effective, but have enough of a constituency to make life hell for anyone who suggests eliminating them.

  3. “Promised” money (aka “entitlements” or “mandates”), servicing the national debt and defense spending together account for such a huge potion of the federal budget that, relatively speaking, there isn’t enough of a “discretionary” budget to cut to make a whole lot of difference.

  4. An increasing national debt means the federal government will compete to borrow more of the money available for investing. Interest rates will rise, along with inflation. Of course, if the U.S. should ever default on its debt, world financial markets will collapse.

In short, we either have to raise taxes or cut back on our “promises.”

3

You have got to face reality. Cutting discretionary spending won’t do JACK. Discretionary spending last year was on the order of $900 billion (including the cost of the war), and the on-budget deficit (which excludes the Social Security surplus) was probably in the neighborhood of $600 billion.

Moreover, more than half of discretionary spending is on national defense. We can eliminate the Pentagon and still be in deficit. This nonsense about Bush’s budget making “tough choices” because it cuts something like $20 billion off of domestic discretionary is just absolute nonsense.

The first order of business in my mind is getting health care costs under control, because until we do, Medicare, Medicaid, VA health care, military health care, and all those related programs are going to continue to have costs grow far beyond the growth of the economy. Then tax people in line with the services that are given out.

If people don’t like the higher taxes, then tax cuts and spending cuts must be enacted at the same time. None of this reckless and irresponsible tax cuts like what happened in 2001.

4

Perhaps it’s just a set up to blame the Dems for our financial troubles that are growing less and less ignorable?

The Dems’ll wrangle over the budget. the pop-con talking heads will decry this as obstructionism or some such. The troubles will become totally unignorable and then the pop-con talkingheads will say that if the Dems hadn’t ‘watered down’ the PotUSA’s budget this could’ve all been avoided. (Facts aside and not withstanding of course.)
Just a hunch of course.

Borrow and spend liberalism of the pop-cons.

5

Amount of tax per capita is but one statistic, which can be a little misleading (note that the UK and Germany aren’t taxed that much more than the US, and Canada and even France are taxed less!)

The real question is that of value for money. The US government ploughs a similar % of GDP into health care as European nations, and yet gets absolutely nowhere near the universality they acheive. Social security also seems to cost the US a similar % of GDP, and yet for an individual to rely on handouts for one’s existence in the US seems so much more desperate a plight than that of the same individual in Europe.

Somewhere, it seems, money is somehow being eaten up in the US system which gets to the end recipient in Europe. My personal guess: In Europe, it was decided decades ago that universal provision of a safety net is the role of government, and such a goal is crystal clear, in terms of planning and processes (even if it is massively expensive). In the US, a large layer of bureacracy is required to decide who gets help and who doesn’t.

However, there is no magic wand. A European-style safety net would perhaps be ruinously expensive for the US to set up.

6

Sorry, I meant to say that "the US government ploughs a similar amount of tax per capita into health care as European nations, etc.

7

Keep in mind that about 15 percent of the government (Defense, Homeland Security, Socialy Security, Medicare) spends 85 percent of the federal budget, while the remaing 85 percent of the federal government only spends the remaning 15 percent of the budget.

You cannot objectively remove social security from discussion. Congress plays games with the budget and “borrows” cash from the SS trust fund to give the appearance of reducing spending. If Congress did not play this sleight-of-hand game, the annual deficit would be much larger than what is currently reported.

And that belies part of the social security mess. Removing Bush’s current lies concerning social security, Congress will have to take revenues from budgets in the future just to return the trust fund money it “borrowed” to pay things right now. This may very well become acute as the Baby Boomers retire, but would skyrocket if the Bush plan were to go through. That’s because Bush’s plan actually reduces the social security revenue stream when just the opposite should take place.

8

Why are European countries able to have universal health care of higher quality and cheaper per capita than what the U.S. spends? Why would copying their system be ruinously expensive?

9

A while back FT ran an article about how the US would save money. So, hella I know.

10

  1. Are we, as a nation, overtaxed?

  2. Do we spend too much?

Who is to say? Does a peacock have too many feathers?

There is no magic level of tax or spending. What’s important is maintaining a sound fiscal policy that is sustainable and the value of the services provided by those taxes.

In reality, both Democrats and Republicans are to blame. Both parties are guilty of spending beyond their. Both are incapable of making real “tough choices” because that would be taking away services or cutting back on defense and pissing off voters.

11

That’s a fine rhetorical point, but it’s not really accurate. Debt service is no “part” of the government, really, but accounts for something like a quarter of the budget.

12

It is a complete waste of time to inject such truth into this subject. How can we call each other names, if you come along and say it is everybody’s fault? :smack:

13

I’d say the proper frame for this discussion is Federal outlays as a percentage of GDP - IOW, what percentage of total US economic output is passing through the hands of the Federal government?

To view the ebb and flow of this stat, go to pp.27-28 of this mammoth PDF of US budget historical tables.

Right now, outlays are running right around 20% of GDP (20.3% and 19.9% estimated for 2005 and 06). Starting with Eisenhower, outlays have run between 16.5% and 23.5% of GDP, so Bush is right in the middle of that range.

Before that, government was smaller by this measure, except during WWII.

14

I think ultimately nothing was going to stop the Federal Government from having an explosion in spending.

The Federal government from it’s inception up until the 20th century could easily afford to only worry about national defense and a few other issues. Interstate commerce was one issue, but it was fairly minor.

Over the years though technology has made interstate commerce explode. There’s so many corporations now with operations that crisscross all state lines.

The Federal government’s regulatory responsibilities had to grow as technology expanded. I can’t imagine the quagmire radio and television broadcast frequencies would be without a national regulatory agency giving out frequencies and regulating their use (I’m not talking about morality regulation, I’m talking about regulations that make it illegal for me to set up a pirate radio station.)

And then of course the constant lessons of history forced us to created a large stand military, that was essential. And after WWII we finally learned that the world was interconnected, and was only going to become more so as time went on. This brought with it global military commitments. And plus in relative terms military technology has just plain gotten more expensive (look at how expensive a tank, or even a basic automatic weapon is.)

So I don’t buy into the doctrine that some espouse that we could “go back to how it was” when we didn’t need a national income tax or a large Federal government. Technology has forced our hand. I find a more local-centric form of government ideal as well, but we’ve had to sacrifice some of that for plain common sense purposes.

Of course the largest amount of federal spending goes into income transfer programs. Medicaid, social security retirement insurance, social welfare et al.

We got along pretty well without these expenses in the 19th century. Did we have mass starvation back then? No, not really. The homeless problem wasn’t as bad either.

On the face of things maybe you might think we could eliminate these income transfer programs. While I do think some could be eliminated, modern living and society have changed so much that we just simply cannot survive as a society without some of these crutches. Housing is so much more expensive now, finding a succcesful job has a much higher opportunity cost now (long education that is very costly).

It used to be if you had a lower income job it just meant you lived without certain “luxuries” that were really considered unnecessary. Now many lower income people don’t have the money for rent, and have an almost impossible time juggling grocery bills, utilities (both essential and nonessential) and rent all at once.

And of course we also have the problem with medical care that Ravenman outlined. Medical care is both more prevalent and more expensive now. If you had diabetes in ages past it didn’t cost much money, because you weren’t going to survive and there really wasn’t any treatment available. If you had TB in ages past that wasn’t a big financial burden, there wasn’t a thing that could be done, you were a dead man walking.

I find Ravenman’s ideas especially interesting, if we could find a way to significantly lower medical costs it’d be revolutionary. But I have no idea how we are going to get the costs under control. The technology involved is so expensive it is hard to defray costs, and we have to have a strong incentive in the form of high salaries for medical workers (from nurses to technicians to doctors) to insure the highest levels of care.

Our society has (rightfully) decided that since we now have medical treatments available for otherwise debilitating or fatal illnesses we cannot deny people these treatments just because they do not have the funds. Medical costs are something that has come about in the 20th century that just did not exist back when we got by only taxing the extremely wealthy (less than 1% of Americans were taxed under the first national income tax.)

So some income transfer is necessary primarily because I don’t think even I, probably one of the most conservative people on this board, can be comfortable letting people die due to illnesses that wouldn’t even effect my standard of living because I have the means to get medical care.

As for our tax situation, I think we are taxed “just about right.” The laffer curve teaches us that even if you wanted to institute 90% taxes, it would actually decrease your overall tax revenue.

Personally I’m in the highest income bracket, and I don’t find my taxes to be too high. I have certain moral problems with capital gains and property taxes, because I feel they are inherently unjust. But I don’t care that I give up 35% of my gross to the government. Now, if my taxes were at 90% or something I’d illegally shelter my income or I’d move overseas.