Don’t Crash the Economy Over the Myth That Spending is Out Of Control

Some members of Congress are driving the United States and the world to the brink of economic disaster on the grounds that they have to stop “out-of control” government spending. This is a dangerous myth and it’s about to steer us over a cliff—completely unnecessarily.

There are two big drivers of our current government spending, and neither of them are permanent: the wars in Iraq and Afghanistan (which have cost about $1.5 trillion so far) and the Great Recession, which has led to spending for people who have lost their jobs or otherwise been thrown into poverty, moderated somewhat by the stimulus program.

These are not permanent “out-of-control” increases in federal spending. The stimulus program blunted the effects of the recession, but that program is already over.  President Obama inherited the two wars and is trying to wind them down responsibly.  When the recession finally lifts, federal spending on the unemployed and lower-income folks who have been hit so hard will decline.

President Obama’s signature program—health care reform—will actually reduce the federal deficit according to the non-partisan Congressional Budget Office.  It will phase out the costly Medicaid Advantage plans and will tax “Cadillac” plans that are unreasonably expensive.

Most government spending is out of Obama’s (and Congress’) immediate control:  Social Security (20 percent), Medicare and Medicaid (21 percent), safety net programs like unemployment insurance (14 percent) and interest on the national debt (6 percent).

The only part of the budget really under the direct, short-term control of Congress and the President, “domestic discretionary spending,” is only 15 percent of the budget and it has not grown at all as a share of the Gross Domestic Product in a decade or more.  This is all the spending for National Parks and Forests (including fighting forest fires), the FBI, interstate highways, the FAA, medical research, aid to education, and other programs that improve the quality of our lives.  Funding for all these worthwhile programs has been repeatedly cut the last few years—there is no way to argue it is “out of control.”

The truth is that federal taxes are the lowest they have been in over 40 years.  In fact, the reason we have a big federal budget deficit right now is that tax collections are so low we can’t pay the costs of the two temporary drivers of the debt: the recession and fighting two wars.

And why are federal tax collections so low? A major reason is the recession itself. When more people are unemployed the government collects less income taxes.

We’re also collecting a lot less money because the Bush tax cuts of 2001 and 2003, which have cost more than $2 trillion, significantly lowered the tax rate for the richest Americans.  Almost all the benefits have gone to the richest 10 percent of Americans, with a huge amount going to the richest 1 percent—people who were already getting richer and richer and didn’t need tax cuts in the first place.  These people (and corporations) are currently sitting on record amounts of cash—not “creating jobs” like we were promised they would when the cuts went into effect. The truth is, significant numbers of jobs will not be created until consumer spending rebounds.

Before the Bush tax cuts, the economy was humming and economists predicted that there would be federal budget surpluses as far as the eye could see.  The tax cuts were enacted and the surplus from the Clinton years disappeared immediately.  Deficits remained each year until the recession hit, when the deficits got dramatically worse because spending had to go up and tax collections unavoidably went down.

Looking ahead—if we restored tax rates to the level they were before George W. Bush—half of our future deficits would be erased immediately and the rest could be brought under reasonable control with the kind of reasonable spending cuts that President Obama has been proposing.

In fact, President Obama only wants to let some of these tax cuts expire (those for the very wealthiest) and eliminate some other egregious loopholes that also benefit only the super-rich.  Yet these reasonable and fair suggestions are so unacceptable to some in Congress that they are willing crash the world economy rather than make a deal.

If this happens, don’t believe it when they tell you it was because government spending was out of control.  It’s extreme partisan ideology that’s out of control.

Nick Estes is Deputy Policy Director for NM Voices.

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