IBD: The Real Fiscal Threat Still Looms
Budget Fight Masks the Real Threat
Posted 12/11/2013 06:55 PM ET
Investors Business Daily
Federal Spending: The hue and cry over the two-year budget deal masks the real threat facing the country — the vast and potentially permanent expansion of government by President Obama during his first five years in office.
Michael Needham, who heads Heritage Action for America, called the budget deal put together by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., a “step backward.”
The plan relies on some of the worst budget gimmicks around. It boosts spending in the next two years by $63 billion, for example, while spreading the promised $85 billion in cuts over 10 years.
But it is, in fact, only a teeny, tiny step backward. The spending increase amounts to a mere 0.8% bump in federal outlays over the next two years.
And the 10-year deficit cut is imperceptible next to the $6.3 trillion the government will otherwise rack up.
In other words, the Ryan-Murray plan is a status quo budget, which is about all the GOP can expect to achieve, given that it controls only the House.
The real threat facing the country’s fiscal house isn’t coming from some small, short-term spending increase. It’s coming from the significantly bigger federal government that Obama has set in motion.
As the chart above shows to dramatic effect, “mandatory” spending — spending on programs such as Social Security, Medicare, Medicaid, welfare programs and veterans’ benefits — had been remarkably stable as a share of GDP for more than three decades, averaging just 9.5%.
Then it spiked dramatically in 2009, because of the recession and Obama’s massive stimulus.
What’s truly shocking, however, is that spending on these programs remains at historically high levels going forward, reaching 13% of GDP by 2021 and climbing from there. It’s on its way to becoming a permanent feature of our fiscal landscape.
The aging population explains some of this uptrend. But the real culprit here is ObamaCare.
Left in place, ObamaCare will add $1.8 trillion to the spending side of the ledger over the next 10 years. By 2023, annual outlays will reach $250 billion. That’s about as much as the federal government will spend on all of Medicaid this year.
And that assumes everything in ObamaCare works as planned — a laughable assumption, given that nothing has worked as planned so far.
For example, if too few young people sign up, which looks increasingly likely, premiums will rocket upward, as will the cost of ObamaCare’s subsidies.
If more people than expected sign up for Medicaid, something that also appears to be occurring, that will add still more upward pressure on federal spending.
And if inflation climbs faster than the ObamaCare forecasts predict — which is also likely, given the increased demand for health care the law intends to unleash — it will fuel even greater federal outlays.
Remember, when Medicare started in 1965, its planners promised that the program would cost only $9 billion by 1990.
The actual cost that year was $67 billion. Even if you discount the unexpectedly high inflation rates of the 1970s, that’s still a fantastic margin of error.
Obama often talks as though he understands the real fiscal threat to the country.
“Our challenge has to do with our long-term entitlement programs,” he said in a speech to the Business Roundtable earlier this year.
And he often talks about entitlement reforms that would deal “with our long-term structural deficits.”
But his proposed changes never amount to anything more than pointless tinkering with existing programs, while he absolutely refuses to touch ObamaCare.
If the country is ever to get its budget and its deficits under control, the fight has to be focused on destroying Obama’s big government dreams before they truly do become a permanent reality.
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