Cal Hates Government Spending
Every year (so long as there is a Democrat in the White House) Republicans in Congress wave their hands and shout about how irresponsible various government spending programs have become and demand we cut spending in an attempt to reduce or eliminate the growing federal government deficit. This is designed to appeal to their fiscally conservative constituents and to show that the government has become bloated and ineffective. The common targets of these spending hawks are things like welfare programs, research grants, and as of recent, the IRS and FBI.
While discussing certain programs, and by the nature of the federal system, representatives are able to stand on the floor and call out massive spending amounts for programs that seem trivial. After all, hearing that the government has spent $3 million “watching hamsters fight on steroids” or even $1.7 Billion maintaining empty government buildings it is easy to be led to believe that the government is not taking their fiduciary responsibility seriously. While I haven’t dignified the Rand Paul Waste Report with the decency to check these facts or investigate the merits of any of these line items, I will instead argue that all of this supposed waste is not worth Congress's time. The amount of spending in question is irrelevant when compared to the entirety of the US government budget. However, we still hear about these items and are lost by the scale of the budget that a few million dollars still sounds like a lot of money. To an individual it is, but to the US government, it is hardly worth noting.
To truly understand the US government budget we need to break things down and look at the broader categories, namely mandatory and discretionary spending. Mandatory spending includes entitlement programs like Social Security, Medicare, and Medicaid. All of which must be paid out to their recipients each year by law. Discretionary spending on the other hand is debated and discussed each year and includes all other government spending including the entirety of our defense budget and every other program that you could think of when you think about government spending. This would include funding for infrastructure investment, the judicial system, and yes all of those research grants that find themselves on Senator Paul’s list. With those broad categories understood, we can look to see just where all of our tax dollars go.
Using data from Fiscal Year 2022 we can see that the US government generated a revenue of $4.9 Trillion from various forms of taxes including both income and payroll taxes. That same year the government was obligated to spend $4.1 Trillion on the various mandatory spending programs and elected to spend another $1.7 Trillion on discretionary spending. From a quick look, you can see that this led to a deficit of $1.4 Trillion. A massive amount that represents 5.5% of GDP. Economists will have different opinions on the sustainability of that level of deficit, it should be noted that it is greater than historical averages and is particularly of concern as we forecast increased interest rates and increasing government mandatory expenditures. I personally feel deficit reduction is something we should focus on in the short term.
So should we listen to Republicans and make cuts on these discretionary programs?
No, in fact cutting the entire non-defense discretionary budget a massive $910 Billion budget item (and the only thing Republicans seem willing to put on the table), would still leave us with a $500 Billion deficit. And that would cut out all of the federal government as we know it. Further, we must look at discretionary spending in historic terms, when we do, we can see that discretionary spending in terms of GDP has actually decreased over the past 20 years. Thus it seems clear that we have been cutting these categories and it would be unwise to make these cuts deeper. This leaves 2 other levers, mandatory spending, and revenues to help reduce this deficit. Let me first acknowledge efforts by both Republicans and Democrats to protect these programs from cuts. Many seniors in particular rely on Social Security and other entitlement programs that have an excellent history of making positive impacts on our society. On top of all this, we promised our citizens these benefits and it is crucial that we fulfill these promises. Mandatory spending, at this time, does not need to be cut. Again, I am sure there are programs on the discretionary side of the budget that could be cut, and I know for certain that the defense budget could be cut. Unfortunately, this would just not be worth the effort. As we saw cutting out the entirety of either defense or non-defense discretionary spending would still leave us with a massive deficit and a more realistic goal for cuts would be on the order of 5 to 10 percent, not enough to reverse our spending course.
While we may not be able to cut mandatory spending programs, we can at least make sure that our taxes keep up with their growth. Over the past 20 years, mandatory spending has increased from an average of 12.9% of GDP to 16.5% of GDP. All the while Payroll taxes, those specifically earmarked for these programs have remained steady relative to GDP. If we want to maintain the system that income taxes largely pay for discretionary programs and payroll taxes pay for mandatory spending it is clear that we need to increase our payroll tax revenue to account for the demographic changes we are experiencing that are causing things like social security to grow. This means making the simple move of removing the payroll tax income limit to make sure all income is taxed equally and likely will require additional actions that will increase tax revenues to keep up. There are many solutions specifically tailored to addressing the social security shortfall that need to be looked into but a few basic rules need to be maintained. First off, we can no longer allow Social Security COLA increases to outpace wage increases as we need to maintain our tax base in perpetuity and not allow outlaws to grow unchecked. We also need to make sure that income from other sources, namely capital gains pay their fair share into the system.
While the deficit continues to be a daunting number that people bring up every year around September. Let’s remember that small line items int he discretionary budget are not the issue. We can and should still spend money on these things and in fact many of these discretionary programs should grow. But if we want to cry wolf about the federal budget lets work towards action that will actually do something by increasing our revenues and assure that we can continue to pay out to the mandatory programs that we have stood by for decades. Ignore the partisan spending fights, I will not take any of these seriously until we take a good look at the massive elephant in the room and increase our tax revenues. There are ways we can raise this money without overburdening struggling families and I would rather politicians expend political capital making these compromises and quit wasting time and effort on these budget hawk performances.
November 12th 2023