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When it comes to the federal budget, what consistently unites Democrats and Republicans is their common capacity to lie to themselves, lie to the public and postpone any serious discussion of the central issues of government spending and taxes. I use the word "lie" reluctantly because it is an unforgiving moral marker. Still, it is the correct word.
Let's review the cruel budget math. Since 1965, the federal government has annually spent about one-fifth of our national income; that's 20 percent of gross domestic product (GDP). Three realities now threaten this crude stability.
First, we are an aging society. From 2010 to 2030, the 65-and-over population grows a projected 85 percent, from 40 million to 74 million. Under current policies, spending on the elderly -- mainly Social Security, Medicare and long-term care under Medicaid -- inexorably rises as a share of national income and the budget. In 2014, these three programs already represented $1.7 trillion of the $3.5 trillion of annual federal spending.
Second, paying for aging puts downward pressure on other spending -- or upward pressure on deficits and taxes. The military (2014 spending: $596 billion) is being steadily shrunk. As a share of GDP, its spending is projected to drop 25 percent under current policies by 2025. Similar pressures also squeeze many domestic programs, from federal law enforcement to highways.
Third, there's already a large gap between what government has promised (and what most Americans expect) and the public's willingness to be taxed. Since 1965, federal taxes have averaged 17.4 percent of GDP. Even at 18 percent of GDP -- near the current level -- taxes fall about 2 percentage points short of average spending. That equals about a $350 billion annual tax increase.
To me, the conclusion is obvious: We can no longer fit all desirable spending under a ceiling of 20 percent of GDP. We can't pay for an adequate defense, protect the elderly and sustain important other domestic programs (from the FBI to Pell grants) at 20 percent of GDP. I don't know whether the right number is 22 percent or something else. But it's not 20 percent. The fact that we run sizable deficits at 20 percent means that a balanced budget would require hefty tax increases.
It would also require significant spending cuts to limit the tax increase. For Social Security and Medicare, we should slowly raise eligibility ages to reflect longer life expectancies, perhaps to 69 or 70 over 15 years. Likewise, we should trim benefits for wealthier retirees. Obsolete programs (say, farm subsidies) should end. Military compensation should be overhauled. But even if all these cuts were made, desirable spending would exceed 20 percent of GDP.
Two great questions would define a genuine budget debate. How much should spending on the elderly dictate national priorities? And, how large a military does today's perilous world require? Of course, this would be hugely contentious -- which is why it hasn't happened. The Republican and Democratic budgets being debated in Congress are not serious efforts. They are public relations documents, designed to please the party faithful.
The Republican budget from the House Budget Committee would cut $5.5 trillion in spending over a decade to balance the budget. About $2 trillion reflects the elimination of the Affordable Care Act; that won't happen under President Obama. Another $900 billion comes from converting Medicaid to block grants for states at reduced spending levels. This is undesirable because it makes states responsible for the rising costs of baby boomers' long-term care. That threatens state spending on schools, roads and other local needs.
There's another $1 trillion in cuts in programs for the poor, such as food stamps. This Republican budget discipline is hardhearted. Nearly 70 percent of the cuts hit low-income groups, says the left-leaning Center on Budget and Policy Priorities. By contrast, the Democratic proposal from the House committee involves almost no discipline. Over the next decade, it runs nearly $6 trillion in deficits. It does nothing to curb spending on the elderly. It ignores balancing the budget and simply declares itself "fiscally responsible," a self-serving and meaningless verdict. Here's the irony: Democrats' refusal to curb any spending on the elderly is profoundly unprogressive because it intensifies pressures to pare back the rest of government. Democrats have become unwitting agents of smaller government outside the realm of the elderly and health care.
We cannot have an intelligent conversation on these issues until both Republicans and Democrats come clean. Republicans need to admit that without tax increases, big and probably dangerous cuts in defense are inevitable. Democrats need to concede that all spending for the elderly is not sacrosanct because this shrinks other important government programs. Until this day arrives, our budget debates will remain what they are today: dishonest exercises in posturing and pandering.
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Previously:
• 03/26/15: A slump to remember: The Fed must remember the disastrous outcome the last time it adopted tighter policies too soon
• 03/23/15: Whither the Fed? From mighty agency to something more tentative
• 03/19/15: Shareholder capitalism on trial
• 03/16/15: The robots are coming: Society can adjust to new technology; will it?
• 03/12/15: Increases wages --- with an asterisk
• 03/05/15: Be skeptical of 'net neutrality'
• 02/26/15: Family-friendly politics
• 02/23/15: Obama's top economists: 'Inequality isn't Middle Class' gratest challenge'
• 02/19/15: A new economic mystery: Negative interest rates
• 02/16/15: Technology doesn't pay off the way it used to
• 02/12/15: World debt is good?
• 02/09/15: The twisted priorities of a graying nation
• 02/05/15: College is no panacea
• 02/02/15: What if everything we know about the 'housing bubble' turned out to be wrong?
• 01/29/15: Austerity on trial: The world watches as 'it's Greek' changes its meaning
• 01/26/15: How other nations' troubles could slow U.S. growth
• 01/22/15: Setting the record straight on Reagan, Volcker and inflation: Part 2
• 01/19/15: Economists are baffled about Obama's recovery
• 01/14/15: 'Dynamic' deceptions: Washington's enlightened budgeting vs. cooking the books
• 01/12/15: Who stopped inflation? Volcker, Reagan and history
• 01/08/15: Europe's other unending crisis
• 01/05/15: Is the economic slog really over?
• 01/02/15: Five economic stories to watch in 2015
• 12/29/14: 'Helping' the middle class won't fix its psychological problems
