Sequester in the Wrong Place
If your head hurts, rush to the podiatrist. This is the logic that animates the sequester debate.
The entire debate focuses on the two areas of discretionary spending in the budget — defense and nondefense. But these are not the problem areas.
The big problem with federal spending is that 32 million households — 27 percent — get welfare benefits (means-tested federal benefits).
Discretionary spending has been tame by comparison. Since the end of the Bush I administration, nondefense discretionary spending has dropped from 18 percent of the budget to 16 percent and defense has gone down from 23 percent to 19 percent. But, at the same time, entitlements have soared. From 1992 to today, entitlements have gone from 50 percent of the budget to 62 percent.
The only reason Congress is focused on discretionary spending is that it is the only area that it can easily control, and Obama knows that any cut in spending in this sector is only temporary and will be easily wiped out by growth of entitlement spending.
Obama has been very willing to cut discretionary spending. During his presidency, non-defense discretionary spending (spending on all federal agencies but the Pentagon) has gone up only from $468 billion to $514 billion — a ten percent hike. And defense spending has gone from $544 billion to $605 billion, only an 11 percent increase. Republicans in Congress have been quite successful in reining in discretionary spending.
But entitlements have soared. Federal welfare programs have increased from $563 billion in 2008 to $746 billion in 2011, a 32 percent rise in three years!
The biggest increases have been in food stamps, unemployment benefits and Medicaid.
Reducing discretionary spending, raising taxes and leaving entitlements in place is a fool’s errand. The more taxes rise and discretionary spending drops, the more the economy slows down and the higher entitlement spending will be. Like a dog chasing its tail, we get nowhere on the central question of deficit reduction. We just shift spending from targeted discretionary spending on education, health, crime, transportation and the environment to cash handouts. In 1980, entitlements absorbed one-third of the federal budget. Now they eat up almost two-thirds.
Today, more than a quarter of America is on some form of means tested entitlement. Here’s the breakdown of the percent of household in a given program:
Medicaid: 20 percent
Food Stamps: 13 percent
School Lunch: 11 percent
Welfare: 7 percent
Public housing: 5 percent
Unemployment: 4 percent
Many, of course, receive money from more than one program.
The budget negotiations or the mandatory cuts that will be triggered by sequester do nothing to address either the key problem plaguing our budget — the growth of entitlements — or the biggest issue impacting our society — the increase in welfare dependency.
One of Obama’s most skillful rhetorical gimmicks is to speak of “entitlements” as a unit in the hopes that the elderly hear Social Security and Medicare. But these programs have not been the biggest culprits in spending growth. The real increase has been in welfare.
There is, of course, a big difference between entitlements for which the beneficiary has paid in earmarked taxes — Social Security and Medicare — and those for which he has not.
The concern that cuts in defense spending will “hollow out” the military are overblown. Defense spending, as a percent of federal revenue, has been relatively constant. It peaked at 29 percent during the Reagan Cold War era and then dropped to 23 percent as Bush wound down spending.
But in 2000, after the Clinton years, it absorbed 18 percent of the budget, swelling to 20 percent under Bush II and returning to 19 percent in 2012. The additional $40 billion in sequester will drop its share to 18 percent — hardly cause for alarm.
So the only thing that should talk Republicans out of letting sequester happen would be if Obama were willing to curb entitlements instead of cutting discretionary spending. But, since his goal is to expand entitlements to redistribute income, it will be a long wait until we see that concession.