For supporters of limited government, there is some good news coming from Washington. On entitlement spending, House Budget Committee Chairman Paul Ryan’s new spending plan would reform Medicare and Medicaid, repeal Obamacare, and balance the budget over 10 years.
And on the discretionary side of the federal budget, the recent sequester will, in theory, trim about $1 trillion from projected spending over the next decade, and that comes on top of similar-sized cuts from the budget caps enacted in 2011. Those cuts are only a fraction of the nearly $50 trillion that the federal government is expected to spend over the next 10 years, but they are a start.
Some people are complaining that the sequester is too broad-based, and that it would have been better to target just the most wasteful programs. But members of Congress don’t agree on which programs are wasteful. Republicans point to costly welfare programs such as food stamps, while Democrats point to the bloated Pentagon bureaucracy. Given this disagreement, an across-the-board sequester was the best way to make progress on cuts this year.
Looking ahead, some policymakers think that no further cuts are needed because the sequester, budget caps, and recent tax hikes reduced projected deficits. But that view is short-sighted. Even if the sequester and budget caps hold, Congressional Budget Office (CBO) projections show that deficits will start rising again after 2015, as the Social Security, Medicare and Medicaid juggernauts keep on growing. Federal spending and debt are expected to rise even faster during the 2020s.
The CBO outlook is scary, but the budget situation is even worse than the long-term CBO baseline shows. That’s because the baseline doesn’t take into account the negative effects of the expanding government on the economy. If spending, taxes and debt keep rising, the growth in gross domestic product will fall, which in turn will cause the ratios of those items to GDP to rise even faster. America will descend into a fiscal death spiral.
Also missing from baseline projections is any new spending that Congress may add in coming years. Another recession would create demands for more “stimulus.” A new military conflict would push up the defense budget. And, as we’ve seen with Hurricane Sandy, every natural disaster quickly becomes a federal budget disaster.
Policymakers shouldn’t be lulled into complacency now that the deficit is finally falling after years of $1 trillion budget holes. The relentless growth in entitlements and the tendency of politicians to add new programs will keep the red ink gushing unless Congress proactively looks for places to cut every year.
Chris Edwards is the director of tax policy studies at the Cato Institute, and editor of www.DownsizingGovernment.org. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.
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