As we move through the election year, much has been said about government spending, but rather than bringing the issue to sharp focus, it has become murky. Is president Obama in favor of big spending or is he trying to cut the federal budget deficits? What are the Republican plans? What is needed regarding spending and what is the likelihood of achieving that result? These are complicated questions that will require a series of posts to even scratch the surface. Today, I want to start by defining the problem.
In fiscal year 2008, the last year of the Bush presidency, federal spending came to a total of 2.98 trillion dollars. This is an extraordinarily high number, more than had ever been spent by the federal government in any previous year. Then came the Obama years. In fiscal 2009, federal spending rose by more than half a trillion dollars to 3.52 trillion dollars. Of course, this spending did include a big chunk of the Stimulus spending. Nevertheless, even when the Stimulus spending had ended, the total amount spent did not decline. For fiscal 2011, spending was up about another 100 billion at 3.6 trillion dollars. Fiscal 2012 which is currently underway is scheduled to come in still another $125 billion more.
The amounts spent are so huge that the quantities seem like funny money; no one can actually conceive of what a trillion dollars actually means, so the spending is just unimaginable. Nevertheless, one has to wonder how it can be that spending by the Obama administration can continue to rise. After all, we know that the war in Iraq is over. All the troops are gone from that country. That change alone should have saved the USA tens or hundreds of billions of dollars in the current fiscal year. We also know that the GOP in Congress demanded spending cuts in a variety of programs, first for 2011 and then much more for 2012. Still, total spending is rising. How can that be?
One answer lies in the way that Congress spends money. About thirty years ago, Congress adopted baseline budgeting. This provides for automatic increases in spending for essentially all programs year after year. If one hears in the news that Congress has passed a continuing resolution that calls for spending at the same level as the previous year, this actually means that Congress just approved about a 7% raise in many of the budget items. In Washington, if a program is raised by 4% in total spending, that is reported as a spending cut since it is about 3% less than the “baseline budget”. When it was first passed, these automatic spending increases were supposed to cover inflation. Of course, since inflation has not run at 7% for decades, the spending increases do much more than cover inflation. The truth is that the baseline budgeting allows Congress to spend more and more without having even to admit that the increases are taking place. Just to make clear what an enormous problem baseline budgeting creates, one need only look at the difference in spending if it were abolished. If spending were to stay level (in absolute dollars) for the next ten years rather than following the baseline budget process, there would be a saving of seven trillion dollars during that decade. SEVEN TRILLION DOLLARS!!!!! Remember that the whole fight at the supercommittee was about 1.2 trillion dollars over ten years. Indeed, by just holding spending level, the bulk of the federal deficit disappears as time goes by.
Let’s look at an example. Here is the amount spent by the Department of Commerce during fiscal year 2010 according to the figures posted on the White House website (whitehouse.gov): Total outlays for the department were $13.247 billion. The same White House site lists the expected outlays for the Department of Commerce for 2012 as $13.142 billion. That sounds very good; the total outlays have declined by $105 million in two years. There is, however, a catch: in 2010, the Department of Commerce spent $6.2 billion extra on the cost of the 2010 census. In real terms, the non-census spending by the Department of Commerce has about doubled in the last two years.
Now, the Department of Commerce is a small part of the federal government. Its total spending is less than one half of one percent of total federal spending for the year. But the point here is not just what the Commerce Department spends; it is, rather, the way that almost every part of the federal government has dramatically increased spending during the Obama years.
The USA has a spending problem of major proportions. There is no way to raise taxes enough to pay for the spending. Basically, the choice facing the country is either to get control of spending or to go bankrupt and descend into economic chaos. It is hard to imagine that this decision is still being debated, but it remains an important issue in the current election.
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