With deficits at near-record levels, both political parties are under significant pressure to cut spending. Given that some tea party Republicans are joining Democrats in the cry to focus on defense spending, it seems as though entitlements will be ignored and defense will bear the brunt of the cuts. Rep. Jim Clyburn, D-S.C., a member of the supercommittee created in the debt ceiling deal, has stated as much.
There is plenty to debate about spending cuts: what should be cut, by how much, etc. However, regardless of anyone’s viewpoints on this matter, we must contend with reality and rid ourselves of the outdated notion that defense spending is the largest drain on the federal budget. This has not been the case for decades, although even highly educated individuals still labor under this mistaken impression, and the press has done little to disabuse people of it.
Fifty years ago, defense accounted for 54 percent of the federal budget, while social spending (such as health care, Social Security, housing and education) was only 26 percent. This has changed dramatically over time. In 2009, social spending consumed 61 percent of the federal budget, while defense was a mere 22 percent.
More importantly, the Congressional Budget Office projects that under current policy, publicly held debt will multiply by more than seven times over the next 40 years. The primary cause will be increased spending on Social Security, Medicare, Medicaid and Obamacare subsidies.
CBO Director Doug Elmendorf noted in July that social programs for the elderly are by themselves enough to bankrupt the federal budget, even if taxes increase and the rest of the federal government is significantly downsized.
He explained, “With older Americans receiving the benefits projected under current law, fiscal policy is not on a sustainable path even with: (a) tax revenues rising above their historical average share of GDP; and (b) the rest of the government apart from programs focused on older Americans playing a much smaller role relative to the size of the economy than during the past several decades.”
Unfortunately, the window for fixing this problem is short. While the New York Times’ Paul Krugman is right that interest rates are exceptionally low, these rates apply to a colossal federal debt of $14.7 trillion. Thus, even with the average interest rate on the national debt currently at a modest 2.992 percent, this amounts to $440 billion in interest payments per year, or $3,700 per household.
Worse still, if interest rates return to typical levels, and social spending and debt continue to rise, we will quickly face unbearably large interest payments. Today’s young people will be stuck with most of the bill for this irresponsible borrowing. According to government data from Medicare and Social Security actuaries, failure to reform just these two programs could cause payroll taxes to rise from 15.3 percent of income to more than 25 percent in the next 30 years.
It is hard enough for recent graduates in the debt-paying generation to start their careers, buy homes and invest for the future in this stagnant economy. But to leave them with such a massive debt burden is unacceptably irresponsible. This debt crisis is primarily borne of social spending, and it will not be solved until Americans come to grips with this reality.
James D. Agresti is the president of Just Facts. Dustin Siggins, a policy blogger, is co-authoring a book on the “Debt-Paying Generation.”