Washington’s Uncontrolled Spending Is Republicans’ Unrecognized Opportunity

REUTERS/Jonathan Ernst

J.T. Young Former Treasury Department and OMB Official

Obama released his “legacy budget” this week, but his budget legacy is already written. Just weeks earlier, Congress’ official, nonpartisan budget estimator projected the future trajectory of his presidency’s policies: spending, deficits, and debt outgrowing the economy – not to mention revenues. If Republicans are serious about advancing a conservative agenda, it needs to start here and it needs to start now.

The Congressional Budget Office began its latest report with this warning: “[T]he federal budget deficit will increase, in relation to the size of the economy, for the first time since 2009…and by 2026 it would be considerably larger than its average over the past 50 years.”

That is noteworthy enough, but the details on future government revenues and spending relative to the economy present a snapshot of the federal budget’s long-term problem. While rising federal deficits captured headlines, rising spending was the real story of America’s fiscal future.

Last year, revenues were 18.2 percent of GDP — above the 17.4 percent average over the last 50 years — and will still be at that level in 2026. On the other hand, spending was 20.7 percent of GDP last year — also above its 50-year average of 20.2 percent — but will rise sharply to be 23.1 percent of GDP in 2026.

The point? Federal revenues will be growing apace with the economy, but spending will be racing well ahead. There is no better summary of Washington’s real budget problem: Spending too much. With both revenues and spending above their long-term averages, over the next decade revenues remain high, but stable relative to the economy. Contrastingly, spending grows significantly from its already historically high level.

The conclusion is inescapable. It’s not that revenues are not growing — they are, and equal with the economy that generates them. It’s not that revenues are historically low — at $3.25 trillion, they were the highest ever last year, (and projected to be over $100 billion higher this year), and are well above their historical average as a percentage of the economy. By no reasonable definition or calculation are federal revenues too low.

Washington’s deficit and debt problem is simply and clearly that federal spending is too high — and growing. In short: it is truly uncontrolled. Already well above its historical average relative to the economy, over the next decade it will grow over 10 percent above that high level.

The consequences of this uncontrolled spending are equally clear. By 2016’s end, federal debt held by the public will have grown by almost 150 percent — from $5.8 trillion when Obama took office to $14 trillion when he leaves.

Fueled by the next decade’s uncontrolled spending, federal debt as a percentage of GDP will grow from 75.6 percent in 2016 to 86.1 percent in 2026. CBO states that level would be “a little more than twice the average over the past five decades … Such high and rising debt would have serious negative consequences for the budget and the nation.”

Republicans have all the evidence they need to attack Washington’s uncontrolled spending. And they should have every incentive to do so too.

If Republicans are serious about reducing the size and scope of government, there is no better place to start than the ultimate yardstick of Washington’s influence. Further, any room for maneuvering to reshape government priorities – such as increasing defense spending — is going to be extremely limited until there is fiscal flexibility to do so.

Regarding the economy, the argument should be on behalf of returning more of the nation’s economy to the private sector. Despite high and growing federal spending over the last seven years, the economy is hardly flourishing.

Federal overspending is also an issue understandable to people. Voters would hardly mishandle their finances as Washington does. As this presidential race has already shown, people are quick to seize on issues that resonate in their own lives. This one does.

And finally, tackling out of control spending is inevitable — clearly the government cannot keep growing faster than the economy forever.

The only real question then is who will address it?

Republicans have avoided this issue for too long. CBO’s report shows that the deficit and debt issue cannot be avoided much longer.

Republicans can seize it while sticking to their conservative principles and advancing their conservative goals. That’s a double win. But if the deficit is left to the liberals, conservatives can expect to see a triple loss of still higher taxes, spending, and debt – just as they have over the last seven years.

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000