Spending, not entitlements, created huge deficit

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    Aug 25, 2011 2:41 PM GMT
    http://campaign2012.washingtonexaminer.com/article/york-spending-not-entitlements-created-deficits

    It's conventional wisdom in Washington to blame the federal government's dire financial outlook on runaway entitlement spending. Unless we rein in Social Security, Medicare and Medicaid, the conventional wisdom goes, the federal government is headed for disaster.

    That's true in the long run. But what is causing massive deficits now? Is it the same entitlements that threaten the future?

    Yes, say some conservatives who favor making entitlement reform a key issue in the 2012 campaign. "We're $1.5 trillion in debt," Weekly Standard Editor Bill Kristol said Sunday, referring to this year's projected deficit. "Where's the debt coming from? It's coming from entitlements."

    There's no doubt federal spending has exploded in recent years. In fiscal 2007, the last year before things went haywire, the government took in $2.568 trillion in revenues and spent $2.728 trillion, for a deficit of $160 billion. In 2011, according to Congressional Budget Office estimates, the government will take in $2.230 trillion and spend $3.629 trillion, for a deficit of $1.399 trillion.

    That's an increase of $901 billion in spending and a decrease of $338 billion in revenue in a very short time. Put them together, and that's how you go from a $160 billion deficit to a $1.399 trillion deficit.

    But how, precisely, did that happen? Was there a steep rise in entitlement spending? Did everyone suddenly turn 65 and begin collecting Social Security and using Medicare? No: The deficits are largely the result not of entitlements but of an explosion in spending related to the economic downturn and the rise of Democrats to power in Washington. While entitlements must be controlled in the long run, Washington's current spending problem lies elsewhere.

    A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called "income security" -- that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it's estimated to spend $622 billion. That's an increase of $257 billion.

    Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid -- its costs are shared with the states -- went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.

    Add to that the $338 billion in decreased revenues, and you get $681 billion -- which means nearly half of the current deficit can be clearly attributed to the downturn.

    That's a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.

    There is no line in the federal budget that says "stimulus," but Obama's massive $814 billion stimulus increased spending in virtually every part of the federal government. "It's spread all through the budget," says former Congressional Budget Office chief Douglas Holtz-Eakin. "It was essentially a down payment on the Obama domestic agenda." Green jobs, infrastructure, health information technology, aid to states -- it's all in there, billions in increased spending.

    As for the Troubled Assets Relief Program, or TARP -- it has no specific line in the budget, either, but that is because it was anticipated to pay nearly all of its own cost, which it has.

    Spending for Social Security and Medicare did go up in this period -- $162 billion and $119 billion, respectively -- but by incremental and predictable amounts that weren't big problems in previous years. "We're getting older one year at a time, and health care costs grow at 7 or 8 percent a year," says Holtz-Eakin. If Social Security and Medicare were the sole source of the current deficit, it would be a lot smaller than it is.

    The bottom line is that with baby boomers aging, entitlements will one day be a major budget problem. But today's deficit crisis is not one of entitlements. It was created by out-of-control spending on everything other than entitlements. The recent debt-ceiling agreement is supposed to put the brakes on that kind of spending, but leaders have so far been maddeningly vague on how they'll do it.

    This issue could be an important one in the coming presidential race. Should Republicans base their platform on entitlement reform, or should they focus on the here and now -- specifically, on undoing the damage done by Obama and his Democratic allies? In coming months, the answer will likely become clear: entitlements someday, but first things first.
  • Posted by a hidden member.
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    Aug 25, 2011 6:26 PM GMT
    Well its about time someone set the record straight that SS and Medicare ARE NOT THE PROBLEM. They are not expense line items in the Federal Budget.


    There are relatively simple fixes to SS and Medicare. sometimes I think politicians use SS and medicare as smokescreens to get the publics attention off those same politicians votes for spending that really is the problem. It cannot be ignored that A huge problem with todays spending is a direct result of the recession, Revenues are down to the 1950's levels in part from Bush tax cuts to the wealthy, while at the same time loss of jobs further cut into revenues for the feds, public spending is way down because the masses don't have money to spend, which further cuts into Gov. revenue. With all this comes more of the public needing to rely on public services to survive. Its an ever growing downward spiral.

    I still say that we need the Gov. to set up jobs programs to spend on infrastructure to put people to work, then spending will start increasing, orders will start increasing and employers can start rehiring then things will start to reverse the downward spiral.

    Unless of course the "Rich and the corporate job creators" would like to invest the vast wealth they are sitting on, intend to rebuild the US infrastructure themselves to benefit the country and its masses. LOL !!! Lets all hold our breath for that to happen. AHHH !!!! but we are told that those "Rich and Corporations" need to keep more of their money and then they'll just go out and start hiring to make more stuff without the demand and increased orders coming first. LOL !!! Which of those two choices would you like to hold your breath the longest for?


    WHERE ARE THOSE JOBS THOSE TAX CUTS FOR THE WEALTHY WERE SUPPOSED TO HAVE PRODUCED ?
  • mojosulo

    Posts: 3

    Aug 25, 2011 8:40 PM GMT
    realifedad said Well its about time someone set the record straight that SS and Medicare ARE NOT THE PROBLEM. They are not expense line items in the Federal Budget.


    There are relatively simple fixes to SS and Medicare. sometimes I think politicians use SS and medicare as smokescreens to get the publics attention off those same politicians votes for spending that really is the problem. It cannot be ignored that A huge problem with todays spending is a direct result of the recession, Revenues are down to the 1950's levels in part from Bush tax cuts to the wealthy, while at the same time loss of jobs further cut into revenues for the feds, public spending is way down because the masses don't have money to spend, which further cuts into Gov. revenue. With all this comes more of the public needing to rely on public services to survive. Its an ever growing downward spiral.

    I still say that we need the Gov. to set up jobs programs to spend on infrastructure to put people to work, then spending will start increasing, orders will start increasing and employers can start rehiring then things will start to reverse the downward spiral.

    Unless of course the "Rich and the corporate job creators" would like to invest the vast wealth they are sitting on, intend to rebuild the US infrastructure themselves to benefit the country and its masses. LOL !!! Lets all hold our breath for that to happen. AHHH !!!! but we are told that those "Rich and Corporations" need to keep more of their money and then they'll just go out and start hiring to make more stuff without the demand and increased orders coming first. LOL !!! Which of those two choices would you like to hold your breath the longest for?


    WHERE ARE THOSE JOBS THOSE TAX CUTS FOR THE WEALTHY WERE SUPPOSED TO HAVE PRODUCED ?


    Fully agreed.

    People who have made cutting spending a priority because they're worried about the deficit are mostly operating on their common nonsense intuition that a national budget behaves basically like a scaled up version of a household one (i.e. in which the income is relatively constant independent of the spending). This is what most people are used to dealing with, so it's their implicit model. But it's a terribly inadequate one for thinking about the national budget.

    On a national level, spending and revenue are not at all independent. There are feedbacks that depend on the state the economy is in. Right now, there aren't enough jobs, because there isn't enough demand (interest and tax rates are very low by historical standards, so you really can't blame those), and there's not enough demand, because many people don't have jobs and have little to spend. Our total capacity for production (as opposed to actual production) hasn't decreased in real terms, so this is essentially a problem of how our resources are coordinated.

    Tax cuts do have some stimulus effect (though the multiplier tends to be lower than for direct spending, meaning tax cuts are less effective). They're particularly less effective when they go to the highest earners, as these people have the highest marginal propensity to save. Poorer people (who benefit more from social programs and infrastructure projects) are more likely to spend any given dollar they have, and thus programs and spending that help them have a bigger effect on demand, which is what we really need right now (and would benefit the job creators as well).

    If, on the other hand, we cut spending and create another demand shock, we can expect a prolonged slump at best and a good chance of a double dip, meaning further-decreased revenues for years to come and no real improvement in the deficit.