Budget Malfeasance: Two recent stories caught our eye. One noted that, even after President Trump's tax cuts, Americans spent more on taxes than they did on food and clothing. The other noted that, as interest rates and the debt rise, the U.S. will soon spend more on interest than on defense. What gives?
XThe fact is, the cost of government is soaring, largely because of uncontrolled spending. This shouldn't be a surprise. At the federal level, despite the moral posturing about debt by both parties, the U.S.' debt has soared from less than $10 trillion a decade ago to more than $20 trillion today. And it's rising at a rate of about a trillion a year. It's a function of more spending on nearly everything, but especially entitlements.
Americans seem not to care, failing to realize that it's their indebtedness, not that of some abstract thing called "the government." That's why last year, according to the Bureau of Labor Statistics, the average American spent an average of $9,562 on food and clothing but a whopping $16,749 on federal state and local taxes. That excludes housing, which costs the average American about $17,819 a year after paying property taxes.
Finding Waste ...
We mention this because, by coincidence, this week marks the release of the Citizens Against Government Waste's annual report on — what else? — government waste. Its Prime Cuts 2018 Report recommends 636 government cuts that would reduce wasteful spending by $430 billion in the first year and by $3.1 trillion over five years.
That's a big chunk of change. For the first 11 months of the 2018 fiscal year, the deficit reached $895 billion, a 32% jump in just one year. Spending and the debt are clearly out of control.
"Even in the 'Drain the Swamp' era, the national debt of the United States first exceeded $21 trillion in 2018 and is poised to rise substantially in the coming years," the report said, calling the soaring debt a "calamitous hole."
CAGW has lots of ideas for cuts. And most, if not all, are good ideas. Get rid of the National Endowment for the Arts and the National Endowment for the Humanities. Neither serves any real purpose, other than to subsidize bad art. It would save $1.8 billion over five years.
Getting rid of the Market Access Program, which hands out millions of dollars to promote U.S. products overseas, is another great idea. It's a government program that performs a function best left to companies themselves. That will get rid of another $1 billion.
... Cutting Waste
Simply by cutting the amount of improper Medicare payments due to fraud, waste, abuse and mismanagement we could save another $18.1 billion over five years.
We'd like to think at least some of this would get done, but given the current poisoned political climate it's not likely.
So, yes, it will inevitably get worse. Not only is spending growing but, as we noted, our interest expenses are exploding along with Fed rate hikes. This was inevitable, following nearly a decade of zero-percent interest rates by the Fed during the Obama years, followed by a series of eight rate hikes — including one on Wednesday — that are causing our interest on the debt to explode.
As recently as 2010, our trillions of dollars in debt cost us a "mere" $196.19 billion a year. That was just 5.7% of all federal spending. By 2018, however, that grew to $384.64 billion, or 8.8% of federal spending. By 2021, according to Office of Management and Budget data, spending on federal debt service will surge to $574.18 billion a year, or 11.2% of the budget. That's in just three years.
Debt Explodes!
Going out, with both Social Security and Medicare spending set to soar, debt will grow at an even faster rate and along with it payments to service that debt. The Congressional Budget Office says that within a decade, the current $384.64 billion spent on debt payments each year will soar to $900 billion or higher.
Americans are cynical about debt warnings, having heard all this before. But the day may come when we have trouble raising money to pay our bills. The money we need to pay for our debt must be raised somehow. That means either taxes or interest rates will rise, or spending will be slashed. There are really no other good choices. And, as CAGW notes, we can find plenty of wasteful spending to cut. Today, not counting money the government owes itself, our debt equals 78% of GDP. By 2048, that will hit 152% of GDP. That's unsustainable.
Meanwhile, according to the CBO, the federal government over the next decade will spend $56.59 trillion while taking in $44.19 trillion in taxes. That's a $12 trillion hole in the budget.
Those of us who wish to leave our children and grandchildren something other than a mountain of unpayable debts had better start thinking hard about how we want to restore balance to our nation's finances. If not, we will soon face a very ugly financial reckoning that will make the last financial crisis pale by comparison.
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