Discretionary spending cuts could actually harm economy
There was nothing positive in the “wretched” FY 2015 spending bill recently passed by Congress. Or so you would think if you heard the cacophony of insults lobbed by the vitriolic extremes of both sides of the political spectrum.
This process was a metaphor for the challenge we face in self-government as basic understanding of the differences in accounting — for citizens and politicians alike — will either harm or aid in our financial recovery.
Most West Michiganders probably paid little attention to the actual content of the $1.1 trillion “CR-omnibus” bill to fund the federal government through FY 2015. We either tuned it out altogether or got our irrelevant facts from Rush Limbaugh or Rachel Maddow. Even the conservative Citizens Against Government Waste, an otherwise effective watchdog group, got it wrong when, for example, they criticized the addition of $1.2 billion in funding for our National Guard because “the Obama Administration didn’t request it.” (Since when does the conservative CAGW give a hoot about the Obama Administration’s requests?)
In order to understand what occurred in Washington over the past several weeks, we need to separate the process from the substance and mandatory spending (Social Security, Medicare, Medicaid, debt financing, etc.) and discretionary spending (health research, defense, infrastructure, education).
For West Michigan, the spending bill provided needed discretionary funding through health research, $40 billion for national highway construction and maintenance, $8 billion for FBI law enforcement, etc. For all the economic positives, however, discretionary funding is usually the first thing to be targeted by politicians, even as deficits have dropped by more than half since 2011 due to a combination of spending cuts mandated by the bi-partisan 2011 Budget Control Act, increased federal revenues and an economy recovering from the worst financial crisis since the Depression.
Public debt held by the public is approximately $12.6 trillion or about 74 percent of 2014 GDP. Of the combined total public debt ($17.6 trillion — about $50,000 per Grand Rapidian), the rest is composed of government-held debt and debt held by foreign investors (CBO June report).
These daunting figures (for federal lawmakers and every West Michigander) indicate an imminent fiscal imbalance. Mandatory spending is projected to expand 61 percent between now and 2024, from $2.32 trillion to $3.74 trillion, eventually accounting for 85 percent of the total projected spending for the next 10 years, thanks to the baby boomer retirements and health care needs. If unaddressed, business owners and even families seeking homes can forget about loans. Health research funding will evaporate, and our infrastructure will erode even more rapidly.
Mandatory spending currently accounts for over 60 percent of all federal spending (Social Security at 23 percent, Medicare and Medicaid at 25 percent and growing, with the rest comprised of child welfare, disability and unemployment insurance, veterans’ benefits, federal employee retirement, and food stamps). Compare this to 1962, before Medicare and Medicaid, when mandatory spending was less than 30 percent of all federal spending (Social Security accounted for about half that amount).
Current discretionary spending at only one-third of all federal expenditures is expected to expand by only 16 percent between now and 2024. While mandatory spending is projected to reach 13.9 percent of GDP over the next 10 years, discretionary spending is projected to reach its lowest point ever at5.2 percent of GDP(with non-defense, non-security related discretionary shrinking even more drastically). Within a decade, discretionary spending will account for less than both social security and the major health entitlement programs.
So why the victory lap when a politician proudly issues press releases announcing she is cutting spending or when a defense program, international aid funding, or a biotech research program is derailed? Good question. Discretionary spending is being targeted yet again even as it has not grown relative to the economy while total federal spending has remained roughly constant.
Discretionary spending cuts will not aid our debt woes, but could actually harm our economy. We need these fiscal seeds for health and other research, infrastructure, defense and other critical programs. Some politicians rail against abstract “government,” but the real threat is the mandatory spending.
Susan Eisenhower, Ike’s granddaughter, once said to me that one of America’s greatest strengths is our political diversity, but it is also our Achilles heel. Washington must unite, leave the hyperbole at home, and face the politically unpalatable solution of mixing further cuts in entitlement benefits, tax increases and other solutions. Are they up to it? This should concern every West Michigander. The name-calling and the selective facts pushed by Fox and MSNBC for their base don’t help.
And when watchdog groups claim that our National Guard shouldn’t receive an increase in funding, tell the soldiers and their families from West Michigan who were deployed just before Christmas bound for Africa that their mission is unnecessary or they don’t need only the best equipment available.
Grand Rapids native Steve Carey is president of Potomac Strategic Development Co. in Washington, D.C.