Federal Spending Grows - And Grows

ECONOMIST Stephen Moore predicts that "absent dramatic reforms," federal outlays will rise from about 25 percent of national output at present to 26 percent in the year 2000, 31 percent in 2010, and 41 percent in 2020."Failure to tame the federal budget has placed America on a path to financial ruin," holds the director of fiscal policy studies at the Cato Institute in Washington. He hopes such predictions, made in a paper prepared for another conservative think tank, the Institute for Policy Innovation in Lewisville, Texas, will have some "shock value" in Washington. If Mr. Moore's calculations are right, the implications for the United States of continued growth in government are tremendous. "To finance this spending taxpayers will face a near suffocating tax burden and/or deficits will skyrocket," he says. If paid for by taxes alone, federal levies for a median-income worker would need to rise in today's dollars from $10,800 this year to $12,800 in the year 2000, $18,600 in 2010, and $27,600 in 2020. One-third of worker income would be taken by the federal governme nt in 2010 and more than 40 percent by 2020. In recent days, other conservative groups have also revived this theme of a runaway federal budget. The Tax Foundation charges that last fall's much-ballyhooed budget summit of President Bush and congressional leaders was "a terrible deal for the American taxpayer." A briefing paper says "taxpayers were stuck with $164 billion in new taxes and will only get for their trouble a higher tax burden, higher spending, record deficits, and a national debt of heroic proportions." Analysts with Citizens for a Sound Economy Foundation write: "The Washington establishment knows that spending and the deficit are out of control, but neither Congress, the Administration, nor the overspending bureaucrats care to take the blame." The fact that conservatives grumble about federal spending isn't exactly surprising. And recession has hit federal revenues and raised spending on unemployment benefits and welfare. But Moore sees something especially "scary" in "the inexorable rise in the size of government" during the most conservative US government in 50 years, that of President Reagan. A defense buildup was a factor in those eight years. But the growth in entitlements (mainly health care, welfare, and social security) was "explosive," Moore explains. The Federal Reserve Bank of St. Louis notes that federal government outlays increased at an average annual rate of 7.8 percent between fiscal years 1980 and 1990. In that decade of supposed fiscal restraint, the budget expanded in real dollars (constant 1991 dollars) by more than $400 billion, Moore calculates. Federal spending now commands "roughly a 10 percent greater share" of national output than in 1980. Moore argues that a cut in defense spending as a result of the end of the cold war will be insufficient to reverse the tendency of the federal government to get bigger and bigger. The military in the US now consumes about 5 percent of national output. That figure could drop to around 3.5 percent in the next few years. One boost to government revenues would be a reacceleration of economic growth. Between 1950 and 1974, the US economy grew at a roughly 3 percent annual rate after inflation. Between 1974 and 1989 the economy grew at only about 1.2 percent per year. Since January 1990 there has been no growth whatsoever. "The economic stagnation started a lot earlier than the recession," says Moore. Moore assumes growth in the years ahead averaging a real 2 percent per year in his calculation of future federal spending. He also assumes Congress will not create a single new entitlement program, though some presidential candidates talk of such. What particularly swells outlays in the years ahead in Moore's reckoning is more health spending and the retirement in the next century of the baby-boom generation. Thus, says Moore, health costs must be controlled. And the normal retirement age should over the next 36 years be pushed ahead six years, he says. Washington may be reluctant to touch such popular entitlement programs. But unless it does, says Moore, preventing more spending will be like trying to beat the Chicago Bulls without stopping Michael Jordan.