We Don't Have a Spending Problem...Do We?

by FRANK HILL February 18, 2013

So many leading Democrats have espoused this opinion lately that you gotta believe it is in weekly talking points put out by David Axelrod or David Plouffe. From President Obama to Nancy Pelosi to Senator Tom Harkin.

"The Campaign of President Barack Obama Will Never End," apparently.

Listening to them on the news shows or reading such comments on-line makes you think they must also believe in the Tooth Fairy, the Easter Bunny or that this asteroid passing us today has more intelligent life on it than Planet Earth.

Here are the facts as we know them today, February 15, 2013:

  1. Federal spending accounted for 22.8% of GDP in 2012, down from 25% in 2009 when The Financial Crisis began. 
  2. If our US economy ever returns to "normal growth" of 5%+ in the years following most every other recession in American history and then settles into annualized 3% growth per year, federal spending may fall back under 21% GDP where it has been for the past 30 years.
  3. A recovered economy would return federal revenues as a share of GDP from a historically low 15.8% level in 2012 to over 19.1% of GDP by 2015.
  4. The historical rate of tax collection in the US has been 17.9% for the past 40 years.

The facts are that, given current economic trends, as slow and as desultory as they have been compared to other recoveries under different presidents and congresses, we are on track to return to historically normal levels of spending in terms of ratio to GDP and higher-than-historical ratios of tax collection to GDP in the next two years.

So what is the real problem, spending or under-taxation under that scenario?

President Obama basically punted his last chances to return taxation collection to the same levels as existed under President Bill Clinton in the '90s with two decisions that were his and his only:

  1. He signed into permanent law 98.5% of all the tax cuts passed by President George Bush and a GOP Congress in 2002/03.  Total amount of tax collection foregone: $4 trillion in the next 10 years. Mostly from the middle-class who paid the bulk of these taxes under Clinton but not today.
  2. During the fiscal-cliff negotiations, he said he wanted higher taxes on the rich by going back to the rates they were under Bill Clinton.  He essentially got that and raised $600 billion from them over the next 10 years, at least on CBO paper that is. Next question.

The real problem in our opinion is that there is a surfeit of caveats and concerns in the CBO report about spending levels staying on current baselines for a number of reasons. Plus the fact that entitlements remain totally untouched and unreformed makes us think this is a recipe for future spending to explode.

Number one is the concern that the recent dip in medical cost care inflation which lowers projected spending baseline trends in Medicare and Medicaid, is just a mirage or or a lull before the storm when Obamacare hits with full-force. Many insurance and health-care companies may have just 'laid low' in the last couple of years waiting to see how the Obamacare rules and regulations would sort out. But now that they have seen these promulgated rules, many expect to see health premiums sky-rocket as a result of compliance with them.
#2 is the concern that 'current law' such as the sequester and the Medicare physician fee cost reductions will be side-stepped by President Obama and Congress and hundreds of billions in proposed spending cuts will never materialize.
 
We share that concern because of Telemachus Axiom #34,507: "If a President who doesn't like smaller government butts heads too often with a divided Congress that really doesn't want to cut spending either....it won't happen."

We have thousands of them. Axioms, we mean.

Plus we know that if we could just sit down with any person reading this article right now who is a big government advocate and make them read the entire federal budget with us as their sherpa, they would become fiscal tightwads in about the 3 days it would take to do so.  Here's just one short list of the sort of wasteful spending we allow to happen in every single appropriations bill and every single entitlement every single year.

Some of the oldie but goodies:

  • The feds once gave Alaska Airlines $500,000 "to paint a Chinook salmon" on the side of a Boeing 737
  • The federal government spends 25 billion dollars a year maintaining federal buildings that are either unused or totally vacant
  • Research funding for a study to determine if cocaine makes Japanese quail engage in sexually risky behavior: $175,587
  • The U.S. Dept of Agriculture gave researchers at the University of New Hampshire $700,000 to study methane gas emissions from dairy cows.

I mean, c'mon. Are these the types of expenditures that even a concentration-of-power-in-Washington-DC Founding Father such as Alexander Hamilton would be proud to see his beloved American Republic spend hard-earned taxpayer money on 230+ years later?

So, do we have an over-spending problem or an under-taxation problem?

We know we have an over-spending problem. How do we know that? Because we can read and have done so with the federal budget many, many, many times over.

Read the federal budget for yourself. You'll agree with us. If you ever finish it, that is.

 

 

Contributing Editor Frank Hill ran for Congress at the age of 28 and served as chief of staff for former Congressman Alex McMillan (NC-9) and Senator Elizabeth Dole (NC). He was a budget associate on the House Budget Committee for 4 years and worked on the 1994 Commission on Entitlement and Tax Reform. He now lives in Charlotte, North Carolina where he does some consulting and lots of worrying about federal spending issues.


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