No Room in the Budget

The Republicans want more defense and tax cuts. The Democrats want more social spending and infrastructure. President Obama wants initiatives that will set his legacy to history. The reality is that neither Congress nor the president can set the country’s spending priorities any longer, that the budget of the United States is on autopilot and has been for years. In the absence of major reform, particularly entitlements reform, these automatic aspects will continue to set the nation’s agenda, squeezing out most of everything else Washington does and rendering all grand political promises moot.

Once through the fog of Washington rhetoric, underlying budget realities look stark. Some 70 percent of all federal spending goes to entitlements – Social Security, Medicare, Medicaid, unemployment insurance, and, more recently, the still relatively small benefits under the Affordable Care Act (ACA). These spending flows continue to grow automatically. Congress does not even debate them. Defense, the next largest budget item at about 17 percent of the total, does yield to legislative discretion, but there is precious little room for that given past cuts and today’s geopolitics. Interest obligations on outstanding federal debt, also an unavoidable expense not ever debated, eat up another 6.5 percent of the total. That leaves barely 6.5 percent of the budget for everything else Washington does, precious little room for education, infrastructure, innovation support, in other words, for all the stuff the political class discusses endlessly and about which it makes most of its promises.

What is worse, the relentless growth of entitlements promises to narrow this room still further in coming years. For decades now, through both Republican and Democratic administrations and Congresses, entitlements growth has outstripped the rest of the budget, and the economy as well, steadily enlarging its share of the total. The pace of gain has accelerated and decelerated from time to time but never once has it paused for very long, much less shrink. On this basis alone, entitlements could easily command three quarters of the budget in only five years, perhaps more considering the swelling ranks of retiring baby boomers and the new spending obligations imposed by the ACA.

While this trend alone will intensify the squeeze on the rest of the budget going forward, other realities promise to make that pressure still more severe. Outlays for interest payments on the national debt will unavoidably take a larger share of the whole, not only because the size of outstanding debt is increasing but also because the cost of financing will rise. The proportion of the total absorbed by this need could easily double to 13 percent in just a few years. And then there is defense spending. Over the long haul, a relative drop in the pentagon’s take has offset the impact of entitlements growth on the rest of the budget. Today’s 17 percent spent on defense is barely over a third of the almost 50 percent spent in the 1960s. Even the additional outlays for the War on Terror, for all the angst they engendered in some circles at the time, hardly interrupted the declining trend, raising the Pentagon’s share to 20 percent at most and then only briefly. But now with defense spending already narrowed to a relatively small part of the whole, there is less room for the kinds of relative cuts that have cushioned other government functions in the past.

Only two changes present themselves as ways to relieve this squeeze on everything else Washington does, neither especially likely any time soon. The first is for government to take more out of the economy, either through higher taxes or more borrowing. Neither Congress nor the public seems ready to countenance such moves, at least to any substantive degree and certainly not without a much better case than the administration has made to date. Entitlements reform, to slow or reverse the inexorable rise, is the other alternative. This seems even less likely than more taxes or more borrowing, certainly given this government’s highly partisan character. The squeeze then will unavoidably become more severe, putting the lie to all the promises of new initiatives emanating from the White House and elsewhere in Washington.

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