The US Spending That's Breaking the Bank

US federal government spending is spiraling upward. Which part of federal expenditures are taking the heaviest toll in terms of hurting the economy?

The federal deficit is expected to hit $407 billion for fiscal 2008 (which ends at the end of this month) and $438 billion next year. Still, the deficit is expected to be only 3% of GDP, which is in line with the average of the last 30 years. We hope Congress and the Presidential candidates don't obsess over the deficit per se, because the real fiscal drag from government comes from how much it spends, not how much it borrows.

The Bush tax cuts also aren't the budget problem. Until this year federal tax collections have been surging. In the four years after the 2003 tax cuts become law, tax receipts exploded by $785 billion. This year revenues have declined by 0.8%, but a major reason is the $150 billion bipartisan tax rebate that has hit the Treasury without spurring the economy. Without these nonstimulating rebates, federal tax payments would have climbed another 2.5%, according to CBO. Revenue is expected to be a healthy 18.5% of GDP next year without any tax increase.

Another myth is that the war on terror has busted the budget. While operations in Iraq and Afghanistan are expensive, defense spending is $605 billion this year, or about 4.5% of GDP. That only seems large by comparison to the holiday from history of the 1990s, when defense fell to 3% of GDP. As recently as 1986, defense spending was 6.2% of GDP.

The real runaway train is what CBO calls a "substantial increase in spending" that is "on an unsustainable path." That's for sure. The nearby chart shows how much some federal accounts have expanded since 2001, and in inflation-adjusted dollars. This year alone, federal agencies have lifted their spending by 8.1%, with another 7% raise expected for 2009. There's certainly no recession in Washington. The CBO says that, merely in the two years that Democrats have run Congress, federal expenditures are up $429 billion -- to $3.158 trillion.

....Meanwhile, remember that "pay as you go" spending promise that Speaker Nancy Pelosi made in 2006? We called it a ruse at the time, and the last two years have proved it. Senator Judd Gregg (R., N.H.) has tallied up at least $398 billion in "paygo" violations so far. Earmarks were also supposed to be cut in half by this Congress. In 2008 there were some 11,000 at a cost of $17 billion, the second most ever, and far more than half the peak of 14,000 in 2006.

The point to keep in mind is that this big spending blitz is coming even before a new President and Congress arrive next year with far more spending promises in tow. As they contemplate their choice for President, voters might want to consider which of the candidates is likely to be a check on Congressional appetites, rather than a facilitator. _WSJ

And that is actually the point, isn't it? While Obama has promised $1 trillion in new spending (!), McCain is not the stingiest of spenders in Congress, either. Biden's record offers little hope for fiscal restraint. Only Governor Palin of Alaska has shown the fiscal discipline that this building budgetary catastrophe demands.

Politicians in Washington DC do not answer to the voters, they answer to the special interests who financed their elections. There is a big difference. Perhaps no one is deeper in hoc to corrupt political machines than Senator Obama. Certainly no one has shown more eagerness to hobnob with truly despicable characters.

Voters need to be extremely careful this year, and every election year thereafter. Much of the fiscal disaster that is building, is enshrined in future promises and mandates. It will be imperative that many of the "social contracts" that have been legislated into government be re-negotiated. The current trajectory is unsustainable over the next couple of decades.

Either face the music now, or face it later when it's too late to mitigate disaster for over half the population.