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Morning Bell: President Obama Is Right, We Have A Spending Problem

Posted By Conn Carroll On January 27, 2010 @ 9:29 am In Ongoing Priorities | Comments Disabled

Tonight in his State of the Union address, President Barack Obama is expected to propose a “freeze” [1] on government spending. Obama’s spending “freeze” will only last three years, will not start until 2011, will only apply to a $447 billion slice of the federal government’s $3.5 trillion budget, and will not apply to any of the unspent $862 billion stimulus plan, his health care plan or the House of Representatives’ additional $156 billion stimulus plan. Despite all the loopholes, time limits and procrastination, the President should still be commended for beginning to acknowledge reality. And as a new report [2] issued yesterday by the Congressional Budget Office (CBO) shows, the reality is this: the U.S. government has an insatiable spending problem.

The CBO’s summary of the report [2] is bad enough: “Under current law, the federal fiscal outlook beyond this year is daunting … accumulating deficits will push federal debt held by the public to significantly higher levels. At the end of 2009, debt held by the public was $7.5 trillion, or 54% of GDP; by the end of 2020, debt is projected to climb to $15 trillion, or 67% of GDP.” But as bad as those numbers are, our fiscal health is actually worse. The CBO is forced by Congress to make a number of unrealistic assumptions about future revenue and spending changes. But their report makes up for this by including alternative projections that make more realistic assumptions. Heritage fellow Brian Riedl crunched those numbers [3]and found:

  • The public debt — $7.5 trillion at the end of 2009 — is projected to triple to $22.1 trillion by 2020.
  • Over what would be President Obama’s eight years in office if re-elected, baseline budget deficits are projected to total $9.7 trillion — nearly triple the $3.3 trillion in deficits accumulated by President George W. Bush.
  • By 2020, the budget forecasts a $1.9 trillion annual budget deficit, a public debt of 98 percent of GDP and annual net interest spending surpassing $1 trillion.

Our country simply cannot afford to be spending $1 trillion in net interest in 2020. So what is the driving force behind these unsustainable deficits? Unprecedented rises in government spending. More Riedl numbers:

  • Since World War II, federal spending has generally remained between 18 and 22 percent of GDP. During the Bush Administration, spending increased from 18.4 to 20.9 percent of GDP.
  • Discretionary spending has increased 25 percent in three years — not even counting the $311 billion in discretionary stimulus spending and approximately $150 billion in annual spending on the global war against terrorists.
  • In 2009, federal spending reached 24.7 percent of GDP — the highest level in American history outside of World War II. Non-defense spending reached an all-time record of 20.1 percent of GDP.

Comparing our government’s prolific spending habits with the decline in revenues from the recession, Riedl concludes: “Between 2010 and 2020, recession-depleted revenues are projected to gradually rebound to 17.6 percent of GDP (slightly below the 18.3 historical average). Spending is projected expand to 25.9 percent of GDP — well above 20.7 historical average. Compared to those averages, 88 percent of all additional deficits by 2020 come from additional spending (5.2 percent of GDP above average), and only 12 percent comes from low revenues (0.7 percent of GDP below average).”

So 88% of all of our crippling debt problems come from our government’s inability to control its spending habits. Put in this light, President Obama’s spending “freeze” is just a drop in the bucket. A credible commitment to reduce government spending would go much farther. For starters, the remaining TARP and stimulus funds should both be rescinded. Next, instead of the President’s fungible “aggregate” [4] spending freeze, tough hard spending caps should be enacted. Finally, Congress should disclose the massive unfunded obligations of Social Security, Medicare and Medicaid; put those programs on long-term budgets; and enact the necessary entitlement and programmatic reforms that can keep government within those limits. [5]

Quick Hits:

  • Due to the fact that President Barack Obama’s $787 billion stimulus failed to stem job losses, the Congressional Budget Office now says the scheme will cost American taxpayers $862 billion [6], thanks to a higher than expected unemployment benefits total.
  • Sens. Evan Bayh (D-IN) and Blanche Lincoln (D-AR) say they won’t support a deal with the House [7] to pass selective parts of their health care bill through the Senate using reconciliation, and Sen. Ben Nelson (D-NE) says Congress should start over entirely.
  • The leaders of the 9/11 Commission — former-New Jersey Gov. Thomas Keane (R) and former-Rep. Lee Hamilton (D-IN) — told a Senate panel Tuesday the Obama administration mishandled [8] the interrogation of the failed Christmas Day airline bomber.
  • Sens. Blanche Lincoln (D-AR) and Jim Webb (D-VA) signed on to a letter to Attorney General Eric Holder condemning the Obama administration’s decision [9] to try Khalid Sheikh Mohammed in a civilian court.
  • According to a new congressional report, the United States is still unprepared [10] to respond to the threat of large-scale bioterrorism.

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/01/27/morning-bell-president-obama-is-right-we-have-a-spending-problem/

URLs in this post:

[1] “freeze”: http://www.washingtonpost.com/wp-dyn/content/article/2010/01/25/AR2010012503549.html

[2] new report: http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf

[3] crunched those numbers : http://www.heritage.org/Research/Budget/wm2780.cfm

[4] “aggregate”: http://blog.heritage.orghhttp://www.realclearpolitics.com/articles/2010/01/25/biden_economic_advisor_debates_spending_freeze_with_maddow_100045.html

[5] Congress should disclose the massive unfunded obligations of Social Security, Medicare and Medicaid; put those programs on long-term budgets; and enact the necessary entitlement and programmatic reforms that can keep government within those limits.: http://www.heritage.org/Research/Budget/bg2114.cfm

[6] $862 billion: http://www.washingtontimes.com/news/2010/jan/27/stimulus-price-tag-soars-as-jobless-rate-rises/

[7] won’t support a deal with the House: http://tpmdc.talkingpointsmemo.com/2010/01/lincoln-bayh-nelson-wont-support-passing-health-care-fixes-via-reconciliation.php

[8] the Obama administration mishandled: http://washingtontimes.com/news/2010/jan/27/911-panel-chiefs-fault-handling-of-bomb-suspect/

[9] condemning the Obama administration’s decision: http://www.politico.com/news/stories/0110/32021.html

[10] the United States is still unprepared: http://www.washingtonpost.com/wp-dyn/content/article/2010/01/26/AR2010012601265.html

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