Budget fairy tales

We have a candour deficit
President Obama last week submitted his $4 trillion 2017 budget, using the occasion for self-congratulation. Deficits are down. Employment is up. He plugged proposals to improve cyber-security, early childhood education and “clean” energy. All this is routine political advertising.
What’s missing is candor and context.
We now have a government that’s doing less and costing more. By doing less, I mean that many traditional government programs — from defense to federal courts — are being slowly and systematically strangled by the costs of an older population (higher Social Security) and the related health care spending (higher Medicare and Medicaid).
How severe is the squeeze? The answer is in table S-7, buried in the back of the budget. Almost one-third of the federal budget consists of so-called “discretionary spending,” which covers defense, courts, parks and all programs requiring annual congressional appropriations (essentially, permission to spend). Most of the rest of the budget goes to “mandatory” programs — Social Security is the biggest — for which people qualify if they meet eligibility requirements. Table S-7 does the useful job of adjusting the projected government spending for inflation and population growth over the period from 2017 to 2026. In effect, the table shows how different types of spending keep pace (or don’t) with price and population
increases. Here’s what S-7 reports:
From 2017 to 2026, Social Security
spending rises 27 percent; Medicare is up
30 percent; and Medicaid increases 24 percent (note: some Medicaid spending goes to the non-elderly). Meanwhile, defense spending falls 19 percent; and non-defense discretionary spending (the category that includes the courts, regulatory agencies, the national parks and much more) drops 16 percent.
Some discretionary programs will always, either for political reasons or genuine need, grow more rapidly than inflation and population. Cybersecurity is a present example. But they are the exceptions. Current policy is for most discretionary programs to do more with less — a formula for ultimate failure. The squeeze in any one year is small; the cumulative effect is huge.
Should we be debating whether this is a wise reallocation of government’s resources? Should we be gradually modifying Social Security and Medicare — raising eligibility ages, reducing benefits for wealthier elderly — to take pressure off the rest of the budget?
Well, yes. But of course, we won’t.
The most obvious reason is that this debate would be highly controversial and unpopular. People regard legislated benefits as an inviolate “right,” never to be withdrawn. The Obama administration, despite the president’s rhetorical skills, has recoiled from challenging these deeply embedded beliefs. Republicans, chastened by years of partisan attacks from Democrats, are only slightly less reluctant.
There is no constituency for candor. Just the opposite: Politicians and budget experts have developed a jargon that makes their debates unintelligible to ordinary people. Budget-speak is deliberately obscure. It empowers those who know it, because it excludes so many others.
Probably not one in a hundred Americans understands the “sequester.” (It’s an automatic spending cut that occurs if Congress doesn’t act voluntarily). Other terms are similarly misleading. As noted, Social Security is classified as mandatory spending. This
implies that Congress has no choice but to pay existing benefits. Not so.
Congress holds the purse strings to
mandatory programs just as it does for
discretionary programs. Yes, it must pay what the law requires, but it can change the law at any time. Candor would compel clarity. Why do we have budget deficits? The main reason is a fundamental mismatch between what the public wants from government and what it’s willing to pay in taxes. The fact that we’ve had only five budget surpluses since 1961 eliminates the business cycle as a central cause. The annual gap between our wants and needed taxes is at least $500 billion and possibly twice that.
Further: The basic conflict posed by the budget is not between rich and poor but between workers and retirees. Present policy favours retirees over workers — the past over the present and future — because, politically, tampering with benefits is off-limits. The rest of government absorbs the fiscal consequences of an aging population.
Thus informed, we could have a sensible debate. We could eliminate marginal programs; gradually raise eligibility ages and trim benefits for Social Security and Medicare; and increase taxes to cover the remaining gap, which would still be sizable. The goal ought to be a balanced budget, with exceptions for recessions and national emergencies. But this won’t happen unless — or until — we learn to discuss the budget with rigorous candour.
— Washington Post writers group

Robert Jacob Samuelson is a columnist for The
Washington Post, where he has written about business and economic issues since 1977, and is syndicated by the
Washington Post Writers Group