The obstacles to sustainability

The need to start leading our nation’s fiscal situation towards a more sustainable path brings a number of things into focus, for those who have looked at the US’s fiscal quagmire:

First, government (at all levels) is the primary source of funding for many forms of investment in the future of the nation that can’t reliably be funded by any other source – and the government has failed to properly fund them.  Education and infrastructure are two obvious examples, but there are many more.  Cutting the funding to these programs means cutting investment in things that America needs, as state and local governments have already discovered.  Many of these programs have already been deprived of sufficient funding, and we’re suffering the effects.  In many cases, cutting back further would do more harm than good.

Second, the federal government has, in addition to such investment-oriented programs, become the sole provider for two massive spending programs: the military and social welfare.  Funding a military is an expensive undertaking at any time, for any nation, but the requirements for maintaining our status as the most powerful military force in the modern era are even more expensive than usual, costing the government $699 billion, or 4.7% of GDP, in 2011.

The government has also assumed responsibility for financially supporting a large portion of the American population – specifically those people who are, for various reasons, unable to sufficiently support themselves.  This may be a good thing, from a moral point of view, but it’s horribly expensive.  Our welfare safety net programs totaled $2 trillion in 2011, 13.6% of GDP, with the two biggest programs being health care programs ($856 billion) and Social Security ($752 billion).  These programs will only get more expensive as the population gets older.  If current trends continue unchanged and the economy continues to grow anemically, these demands on the government budget will eventually crowd out all other forms of government spending.

Third, the federal government’s revenue stream has been cut at the same time that the demands on its purse have been increasing.  In 1991, the government received 17.8% of GDP in taxes; by 2011, it was bringing in 15.4% of GDP.  This is due, in part, to the Keynesian tendency of politicians to cut taxes during recessions.  However, far more of the lack of funding is actually due to the tendency of politicians, over the last few decades, to insert loopholes and tax breaks into the tax code.  These things are, essentially, government spending via the tax code, and they cost the federal government an additional $1.1 trillion in 2011, almost a third of the government’s “official” expenditures (which totaled $3.6 trillion in 2011) [Wessel, p. 28].

Source note:  In April 2012, the Congressional Budget Office published a useful graphical overview of the statistics on the government’s revenue, mandatory spending, and discretionary spending

 

Next page:  Untangling the knot

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