Spending Cuts? What Spending Cuts?

The long-term picture for discretionary domestic spending looks grim.

The Congressional Budget Office released its Monthly Budget Review on Nov. 7.

In FY 2003 spending (outlays) increased by $146 billion over FY 2002. The rate of spending growth in FY 2003 was 7.2 percent, slightly below the 7.9 percent rate of spending growth in FY 2002.

Nevertheless, the positive percentage increase in the rate of spending does not take into consideration the important points below.

  • While the Monthly Budget Review paints a broad picture that cannot easily be disaggregated into categories like "discretionary" and "non-discretionary," the rate of growth of spending was not evenly distributed. The rate of growth in military spending (a discretionary spending category) was 17.1 percent. The rate of growth in Medicare was 8.2 percent and in Medicaid (entitlements) was 8.9 percent. The rate of growth in "other programs and activities," was 8.5 percent, but that category includes homeland security, which saw the creation of an entire Cabinet Department, and emergency non-military spending. The emphasis has been on how discretionary spending is growing well beyond Bush's promised 4 percent growth rate, massive cuts have not been happening, and government is growing, not shrinking, at an unprecedented rate. The Washington Post reported on November 12 that according to congressional budget panels, discretionary spending was up 12.5 percent in FY 2003. However, the real picture must take into account the war and our continued presence in Iraq and Afghanistan and the attack of September 11, 2001, which have guaranteed that military and homeland security spending have been behind much of that growth in discretionary spending.
  • Second, there is considerable evidence of state cuts in programs and services, and increased demand for social services provided by nonprofit service providers. State budgets, unable to run deficits, have been hard hit during the past year, and things are not expected to get better for several years.
  • Finally, and most alarmingly, are the inevitable and truly draconian tax cuts that are yet to come. In FY 2003 tax revenue fell for the third year in a row by $71 billion, 3.8 percent below revenue in 2002, and a whopping 12 percent below 2000. Deficits are rising and the national debt is growing. The deficit for FY 2003 is $374 billion, or about 3.5 percent of GDP (gross domestic product). The "on-budget" deficit that does not include Social Security trust funds or Postal Services transactions was $535 billion. When the big demographic change of massive baby-boomer retirement occurs, and Social Security revenue no longer runs a surplus or is unable to cover Social Security payments to beneficiaries, deficit figures will start looking much worse.

In conclusion, the only way to avoid huge future cuts in domestic programs and services will be tax increases, which are never politically popular. Things may not look so bad right now, but the federal government’s ability to fulfill its basic social services and healthcare obligations to citizens is only at the beginning of a long downhill resolution.

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