America’s financial morass

Big government may be its own worst enemy

WHAT has been missing in Washington for the past two or three decades is a serious debate about the role of the federal government. What programs are effective and justified? Who deserves government benefits and how much?

The issue is not whether we’ll have big government or small government. To paraphrase President Bill Clinton: The era of small government is over. Actually, it was over many decades ago. The real issue is whether we’ll have effective big government or mismanaged big government.

So far, mismanaged is winning. As I have written countless times, the semi-automatic expansion of programs for the elderly (mainly Social Security, Medicare and long-term care under Medicaid) is slowly crowding out many other government programs, from defense to the Centers for Disease Control and Prevention. The paradoxical result is that government spending will grow larger, even while it grows less effective.

The conventional wisdom in Washington is that the Republicans are responsible for this mess. Their fixation with sizable tax cuts leaves government perpetually dependent on massive borrowing. There is much truth to this. We cannot afford large tax cuts. Just the opposite: We need tax increases, slowly introduced, to cover government’s existing deficit, roughly $700 billion in the current fiscal year.

Still, the Republicans-as-villains story is a half-truth. The other half is the refusal of Democrats — “liberals” and “progressives” — to cut almost any Social Security and Medicare benefits. They’re essentially off-limits, even though life expectancy has increased and many elderly are well-off. Plausible cuts need not be draconian. Extending the eligibility age for full Social Security benefits by a year would reduce spending by 7 percent.

In 2017, combined Social Security and Medicare spending will total $1.6 trillion, about 40 percent of the $4 trillion federal budget, estimates the Congressional Budget Office. With so much money off the table, the pressure to cut other spending intensifies. Perversely, liberals and progressives have become unwitting instruments to squeeze or cripple many vital government programs.

A new study by Paul N. Van de Water of the left-leaning Center on Budget and Policy Priorities makes this clear. On the one hand, government gets bigger. In 2016, federal spending totaled 20.9 percent of gross domestic product (GDP), our economy. By 2035, this will be 23.5 percent of GDP, Van de Water projects. That 2.6-percentage-point gain may seem tiny. It isn’t. It equals almost $500 billion in today’s dollars. (Remember: The U.S. economy has a $19 trillion GDP; one percentage point is $190 billion.)

At the same time, much of government is projected to shrink. The simple answer is that the increases for the elderly overshadow the losses for everyone else. Van de Water measured the major categories of federal spending as a share of GDP in 2016 and then made estimates for 2035. (Using the share of GDP eliminates the effect of inflation between the two years.)

The elderly enjoy big gains in Social Security, Medicare and “other health spending.” Meanwhile, defense spending drifts toward its lowest level since 1940. Other domestic programs (the FBI, the national parks, regulation) could face crippling defunding. The same holds true for “other entitlements” (food stamps, unemployment insurance).

And despite the cuts and a large tax increase, there remains a big 2035 deficit running into the hundreds of billions.

There’s a gigantic gap between what Americans can expect from the government and what, based on existing policies, it can deliver. Governmental services, including defense, are slowly being degraded, because Dem-

ocrats are determined to protect spending on the elderly and Republicans feel the same way about their tax cuts.

They are both living in self-serving fantasy worlds that subvert the national interest.

A change in public opinion — a

change that accepts higher taxes and recognizes that an aging society needs to be more discriminating in subsidizing the old — seems the most obvious escape from this political cul-de-sac. But there’s a Catch-22. Opinion won’t change until political leaders reject long-standing partisan taboos, and they won’t do that until they sense opinion has changed.

We will probably muddle through for the time being, though the system’s contradictions suggest it’s not permanently stable. We’ve used government carelessly and, someday, the carelessness may bite us. We may face steep spending cuts and tax increases to curb runaway debt.

Big government may be its own worst enemy.

Tim Brinton