The following op-ed was published by Bloomberg Government on September 6th, 2011.
By former United States Senator and Ambassador John Danforth and Concord Coalition Executive Director Robert Bixby
Many Americans wonder why it’s so difficult to rein in federal spending. Perhaps they should look in the mirror.
Most of what the government does is write checks to, or on behalf of, its citizens. In budgetary parlance, these are referred to as “transfer payments.” They include Social Security, Medicare, Medicaid, unemployment compensation and a host of smaller programs. Some are based on need; most aren’t.
These transfer payments are at the core of the difficult assignment facing the new bipartisan supercommittee of lawmakers as it works to find at least $1.5 trillion in deficit reduction over the next decade.
In 1940, the year Social Security started making regular monthly payments to retirees, only 18 percent of the federal budget consisted of transfer payments.
By 1970, transfer payments claimed a third of the budget. Last year, with the economy struggling and millions of baby boomers retiring, such payments amounted to $2.29 trillion — almost two-thirds of all government spending and more than all government revenue ($2.16 trillion). As our population ages and health care costs continue to climb, even more federal dollars will likely go to transfer payments.
Transfer payments have a vital role. The problem is that they’ve been allowed to grow so rapidly, with no sense of the trade-offs involved. Many transfer payments have so-called mandatory status in the budget, meaning Congress doesn’t review them on an annual basis the way it does with road building or defense procurement.
Long-term projections by the Congressional Budget Office highlight the need to confront the main sources of spending growth. Under realistic assumptions, Medicare, Social Security and Medicaid are projected to grow by about 60 percent over the next 25 years relative to the size of the economy.
Offsetting that growth would require spending cuts equivalent to eliminating all national security activities. Alternatively, it would require the equivalent of doubling individual income taxes.
Fiscal reform need not devastate low-income Americans. Only a quarter of the federal government’s transfer payments last year — those made through Medicaid, housing assistance, nutritional programs and other public assistance — were related to need.
Four-Fifths of Budget
The top five federal transfer programs in 2010 were Social Security ($700 billion), Medicare ($519 billion), Medicaid ($273 billion), benefits for retired federal employees ($166 billion) and unemployment benefits ($158 billion).
In addition to transfer payments, the federal government wrote $447 billion in checks last year to its current civilian and military employees. Adding that number to transfer payments totals $2.73 trillion in payments to or on behalf of individuals. That’s 79 percent of total federal spending.
There’s not much appetite for paying higher taxes to maintain the flow of those checks. Indeed, the government provides $1 trillion in additional subsidies through the tax code. Most of these so-called tax expenditures are for individuals, such as the exclusion of employer-provided health care from taxation, child credits and the mortgage interest deduction.
With politicians reluctant to take the political risk of either scaling back popular government benefits or raising sufficient revenue to pay for them, a massive and unsustainable budget gap has developed.
While there’s now a loud clamor for cuts in government spending, Americans need to be realistic about how much of the federal budget consists of transfer payments such as those that go directly to them or their families.
As the cartoon character Pogo famously said, “We have met the enemy and he is us.” Responsible fiscal policy will depend on citizens who demand fewer benefits from their government and on politicians who focus more on the long-term good of the country than on the next election.