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Federal Spending

The Time for Reform is Now

With the entitlement programs Medicaid, Social Security, Medicare and Medicaid and discretionary spending levels set to consume increasing shares of national income, a challenge of unprecedented proportions looms large for Congress and the president.

Federal revenues are expected to consume 19 percent of gross domestic product (GDP) in 2009, which constitutes a high by historical standards.

The retirement of the baby boomers, and the corresponding upward pressure on entitlement spending, has long been pushed aside as a problem for the future. As some baby boomers become eligible for Social Security benefits in 2008, the future is now. The Congressional Budget Office (CBO) projects that Social Security spending will climb from a 5.1 percent growth rate in 2008 to 6.4 percent in 2018.

Medicare and Medicaid spending is projected to grow from 4.6 percent of national income in 2007 to 19 percent by 2082, consuming the same share of the economy as the entire federal budget does now.

When factored in with the costs for state and local governments, the looming explosion of entitlement programs can reasonably be expected bring total government spending as a percentage of GDP to well over 50 percent.

The time for reform is now.

Entitlement Reform

There are concrete options for free market reform of Medicare, Medicaid and Social Security that would allow continuity in benefits while fundamentally shifting the entitlement programs to personal accounts, one such approach comes in the form of Congressman Paul Ryan’s (R-Wis.) “Roadmap for America's Future” (H.R. 6110).

In the area of Medicaid, Rep. Ryan’s proposal would provide states greater flexibility to tailor their Medicaid programs to their population’s specific needs. Recipients of Medicaid will further be allowed to take part in the same variety of options and high-quality care available to everyone through the tax credit option.

The 2008 Cost of Government Day Report written by Peter Ferrara, an expert in the area of entitlement reform, provides more detail on how to reform our country’s entitlements.

Budget Process Reform

But not just entitlement system is in dire need for reform. The federal budget process is fraught with many problems, and its structural flaws provide an open invitation to overspending and abuse.

Earmark Reform

The opacity of the process, which allows members to insert pork-barrel spending projects with little or no debate, is only one of those issues. While an attempt to impose a moratorium on all earmarks to study and reform the process failed in 2008, Congress would be well-advised to rekindle the efforts if record-low approval ratings are any indication.

For more information on earmarks, click here.

Term Limiting Appropriators

One simple, but powerful reform would merely require a change in congressional rules: Term-limiting appropriators, a proposal Americans for Tax Reform has long supported. The appropriations committees are arguably some of the most powerful committees in congress. It is for a reason that there is an old saying that there are three parties in Washington: the Republicans, the Democrats, and the appropriators. If power corrupts, and absolute power corrupts absolutely, then it comes as no surprise that quid-pro-quo policies persist under the current system.

In term-limiting appropriators, congress would break the entrenched arrogation of power and place a greater importance on merit rather than seniority thereby ensuring that policy takes precedence over political favors.

This reform proposal leans on a 1995 rules change in the U.S. House of Representatives, which established a six-year term limit for committee chairmen, ranking minority members and budget committee members. The same term limits were adopted in the senate a year later.

The recent indictment on corruption charges of Sen. Ted Stevens, veteran appropriator from Alaska who has taken great pride in bringing home millions of dollars in pork projects, only underscores the urgency for reform.

The Fallacy of Bi-Partisan Reform Commissions

Recently, bills to establish bi-partisan reform commissions have been introduced. While the lofty promise of overhauling the budget process may seem appealing, the inherent danger is that these bipartisan reform commissions run the risk of selling out taxpayers.

One such example is H.R. 473, the “SAFE Commission Act” sponsored by Congressman Frank Wolf (R-VA). H.R. 473 establishes a bipartisan commission to recommend wholesale changes to federal spending programs and the tax code. Congress would have to vote up or down on what the commission recommends. Given how the commission would be structured, it is extremely likely to result in a recommendation for a massive and permanent tax hike.

The underlying problem is the ongoing obsession of liberal politicians and, unfortunately many analysts, with the ‘deficit.’

The Deficit – the Uninteresting Number Between Two Meaningful Ones

The Federal deficit is a completely uninteresting number, which is the difference between two meaningful and important numbers – the total level of federal spending and the total level of federal taxes. The size of government is determined by the level of these two numbers, and not by the deficit. A deficit of five percent of GDP with federal spending at 20 percent is far preferable to a balanced budget with federal spending at 40 percent of GDP. Reform needs to focus on reducing federal spending as a percentage of GDP, not on tax increases.

For more ideas on how to reform the federal budget process, see for example Brian Riedl’s 10 Elements for Comprehensive Budget Reform (Heritage Foundation).