While many reports will focus on the Congressional Budget Office’s (CBO) 2014 deficit and economic forecast released today, a less-told story is what’s driving the growth in government spending over the next decade. Beyond current reporting on the federal government’s balance sheet, CBO reports also serve the important purpose of informing Congressional decision-making.
Today’s report unequivocally communicates: reform entitlement programs or watch government grow.
The Congressional Budget Office’s “Update to the Budget and Economic Outlook: 2014 to 2024” reports a federal deficit of $506 billion for fiscal year 2014 (which ends on September 30), slightly above its April projection of $492 billion. Spending in 2014 will be about $3.5 trillion, growing by about 2 percent compared to the previous year. The debt will rise slightly as a percentage of GDP to 74 percent, staying at a level not seen since World War II.
Over the next decade, government spending is projected to grow annually on average by 5.2 percent. Eighty-five percent of this projected growth in spending will be due to three main budget components: Social Security (the largest federal program), health care (spending on which will overtake Social Security spending by 2015), and interest on the debt.
The three major federal entitlement programs—Social Security, Medicare, and Medicaid— are growing faster than any other budget component, except interest on the debt. Those who seek to limit the size of government need to first understand the drivers of the growth in government spending if they are to be effective.
All of the increase in spending in 2014—all of it— is due to the growth in entitlement spending and interest on the debt, as discretionary spending particularly on defense continues to fall. According to the CBO:
“Outlays for mandatory programs, which are governed by statutory criteria and not normally controlled by the annual appropriation process, are projected to rise by about 4 percent. That increase reflects growth in some of the largest programs—including a 15 percent increase in spending for Medicaid and a roughly 5 percent increase in spending for Social Security.
“Discretionary spending, which is controlled by annual appropriation acts, is anticipated to be 3 percent less in 2014 than it was in 2013. Nondefense discretionary spending is expected to be about the same this year as it was last year, but defense spending is likely to drop by about 5 percent.
“The government’s net interest costs will rise by nearly 5 percent this year, CBO estimates, the result of the continued accumulation of debt and higher inflation (which has boosted the cost of the Treasury’s inflation-protected securities).”
Conservatives who seek to limit government spending should advocate for entitlement reform. Government continues to overreach and harm economic growth with unnecessary and inappropriate federal regulations enforced with discretionary spending. Undoubtedly, many domestic federal programs should be eliminated, consolidated, or privatized. However, an almost singular focus on reducing discretionary spending misses the proverbial forest for the trees. Congress should reform entitlement programs and cut non-defense discretionary spending.
Without entitlement reform, America is heading for European-style spending and taxing levels—and that will be the end of limited government in America.