You simply aren’t getting an accurate picture of the budget outlook. President Clinton isn’t giving it to you, nor is the press. No one is looking beyond the next four or five years to the population changes that will fundamentally drive federal spending in the next century. It is precisely because these forces are so powerful that everyone needs to take a longer view. Once you do, the conclusion becomes obvious: the president and Congress ought to be ruthless today in paring back unneeded government programs so that tomorrow’s unavoidable spending increases will be easier to bear.
Unfortunately, Clinton’s budget program goes in exactly the opposite direction. He condones unneeded programs and adds too much new spending. Instead of clarifying government’s responsibilities-telling us what’s essential and what’s expendable-Clinton perpetuates the fuzzy notion that government should do anything that seems vaguely desirable. He gives us a smorgasbord of new government ranging from “national service” to more research and development. By 1998, all his new spending proposals and tax breaks would bloat the deficit by $62 billion.
Worse, these scattered spending increases will compound all the other pressures for higher taxes. Let’s examine what those are. Consider:
An older population means Medicare costs more. People get sicker, and their illnesses are more expensive. Between 1990 and 2010, the over-85 population will double; and those over 85 have medical expenses 2.5 times higher than those 65 to 69. The taxes used to pay for Medicare are gradually being overwhelmed. Between 1997 and 2010, spending will increase by nearly 2 percent of GDP, estimates the Health Care Financing Administration. Paying for that increase would require about a $120 billion tax increase in today’s dollars.
Clinton has promised this as a part of his health-care program, and so the extra spending could come sooner rather than later. In 1992, an estimated 35 million Americans lacked health insurance. The cost of covering them would be about $35 billion annually, if the cost of a basic insurance package could be held to $1,000 per person. That’s about 0.5 percent of GDP.
Older Americans already fear being bankrupted by nursing-home care. As more Americans age, the anxieties will rise-and so will pressures for government help. Clinton may or may not include long-term care in his health plan. But any major program would be costly. Legislation proposed by congressional Democrats would expand Medicare coverage for home health care (visiting nurses, caretakers, etc.) and nursing-home stays. The annual cost is $45 billion, about 0.75 percent of GDP.
You may note that my list doesn’t include some possible new programs: for instance, welfare reform. Even so, the items listed above would cost about $200 billion annually. However, that’s not the end of the story. Let’s assume that Clinton’s budget is adopted. The deficit drops temporarily-mainly because taxes rise and defense spending falls-to a low of 2.7 percent of GDP in 1997. To balance the budget, this, too, has to be covered. All told, the necessary tax increases amount to nearly 6 percent of GDP. That’s $360 billion in today’s dollars and more than five times the tax increases in Clinton’s program.
Given these huge pressures, Clinton’s expansive spending proposals-on everything from highways to subsidized tree planting-are simply an exercise in irresponsibility. Clinton could easily have cut the deficit an additional $50 billion a year: $30 billion of savings could have come from forgoing much of his new spending; $20 billion more could have been saved by eliminating outmoded programs like farm and cultural subsidies. All these programs-old and new-are mostly handouts to favored constituencies. They’re not essential social spending.
There are two possible defenses of Clinton. The first is that he’s unaware of the next century’s huge spending pressures. This is implausible. Hey, this guy is President Policy Wonk. He knows budget trends. The second defense is that Clinton will defuse these pressures by controlling health-care inflation. Yes, that’s critical. But it isn’t, by itself, a solution. The excess inflation in health care isn’t the only reason for rising costs. An older America will need (and demand) more health care than today’s younger America. Indeed, the projections of Medicare spending cited above already assume that health-care inflation will subside substantially.
We are on the edge of an upheaval. Since the 1950s, the national tax burden has been stable. In 1954, federal taxes were 18.9 percent of GDP; in 1992, they were 18.6 percent. Two trends explain this remarkable stability: first, we paid for rising welfare spending by cutting defense (in 1954, defense was 70 percent of the total; now it’s 20 percent); and second, we allowed the deficits to explode. Both trends are now reaching their limits. My projections of spending and tax pressures are admittedly crude. But in some ways, they are conservative, because all the pressures will intensify around 2010 when baby boomers begin to turn 65.
One way or another, today’s younger and middle-aged workers will shoulder the load of bigger government. Given population trends-and the essential role of government in providing medical care for older Americans-much of the increase is unavoidable. The legitimate complaint against Clinton is that he’s not anticipating this spending bulge and, through his own unchecked spending increases, is making matters worse. He keeps preaching to us about the need to be candid and to take the long view. But he hasn’t done either.
