Consumer confidence at a record high.....prosperity for all Americans.....eliminating national debt....low interest rates.....why change?......read my lips....no,better...read this,,,,,,The Big Federal Freeze
Never mind what Al Gore and George W. Bush say about
their competing notions of government spending. The money
they're talking about is pocket change compared with fixed
costs that run in the billions. By MATTHEW MILLER(NYT Magazine.p94,today)
To listen to Al
Gore and
George W. Bush,
you'd think this
election represents a
clash between
radically different
visions of what the
federal government
will spend money on
in the years ahead.
Gore seems to want
to throw new cash
everywhere -- preschools, teacher salaries, personal savings accounts.
Bush, by contrast, pledges a government that trusts "real people," not
Washington bureaucrats, to do what's best with their money.
What both men know but won't discuss is that despite their avowed
priorities, the vast bulk of today's $1.8 trillion federal budget is already
spoken for -- and that before long, what little discretion a president has
to leave his thumbprint on the federal beast will shrink toward zero.
Federal spending, in short, is already so big (and fixed) relative to either
man's aspirations that even their boldest proposals merely tinker at the
margins. Bush's "risky" tax cut of $1.3 trillion over 10 years, for example,
comes to roughly 5 percent of projected revenues over that period. Al
Gore says he'll mount a "revolution" in education with a 3 percent bump
in national school spending.
Presidents are doomed to nibble at the edges because of a fiscal fact
most campaigns ignore. For all the moans about "big government," just
seven items make up 75 percent of what Uncle Sam does: Social
Security ($403 billion a year), Medicare ($199 billion), Medicaid ($117
billion), military and civil-service pensions ($79 billion), defense ($294
billion) and interest on the debt ($220 billion). Toss in a few smaller
entitlement programs and you've covered all but one-sixth of federal
outlays.
And it's only going to get tighter. With the
exception of Pentagon spending and the
debt, all of these categories grow
automatically, though "grow" may be the
wrong word. Once 76 million baby
boomers start hitting their rocking chairs a
decade from now, the costs of their health and retirement programs will
explode. The federal dollars not devoted to entitlements and defense will
slip from a level that is already lower relative to the size of the economy
than at any time since bean counters started tracking such things in 1962.
The paradox is that the leftover spending, the so-called domestic
discretionary functions, is what most Americans tend to think of as
"government": border cops, college loans, cancer research, air-traffic
controllers, inspectors who make sure the food on the shelves won't
poison us, the construction crews that expand highways gripped by
gridlock.
The math is simple: unless Americans develop a taste for big new taxes,
or politicians trim entitlements, there won't be money for government to
do much it's not already doing.
t wasn't always thus. Back in the early 1960's, when Social Security
was in its youth and Medicare didn't exist, the bulk of federal
spending went for those items subject to yearly Congressional review.
Today the ratios have reversed: 7 in 10 dollars go instead for mandatory
spending, payments made automatically to citizens we've said are entitled
to them. Meanwhile, the more optional National Park Service ($1.4
billion), F.B.I. ($3 billion), U.S. Border Patrol ($1 billion), Head Start
($5 billion) and aid for poor schoolchildren ($9 billion) together add up
to a penny on the federal dollar.
The Federal Reserve Board chairman, Alan Greenspan, likes to say the
new economy is "lighter" than the old, weighing less per dollar of gross
domestic product, as software has become more essential than steel. It's
the same with new government: highways, dams and research
laboratories have lost their primacy; cold cash -- for pensions, doctors
and hospitals -has taken over. Call it government by A.T.M.: you walk
up, hit the buttons and the cash to which you're entitled pops out. Ask
not what you can do for your country, my friends, but what cash your
country can dole out to you.
The transformation of government from road
builder to check writer was not a historical
accident. It was a deliberate effort, on the part
of Congress and voters, too, to use the
nation's postwar affluence to fashion a more
secure safety net. The shift, necessitating a
boost in federal domestic spending from 6
percent to 15 percent of gross domestic
product (G.D.P.) between the end of the
Korean War and the late 1970's, was the
product of what Gene Steuerle of the Urban
Institute calls "the era of easy finance."
Defense spending declined swiftly after Korea, leaving a peace dividend
that could be deployed elsewhere. Social Security payroll taxes rose 3
percent each decade with little public complaint, mainly because early
beneficiaries hadn't paid into the system for long and thus received far
more in benefits than they contributed. Finally, the combination of
inflation and tax brackets that weren't adjusted for it enabled government
revenue to quietly grow faster than the economy. This was a dream
world for politicians; they could expand benefits and cut taxes. The idea
that this might eventually cause trouble for an aging society was a
problem for another day.
Not that we should come down too hard on yesterday's politicians for
lacking foresight; they accomplished a great deal. The results of
government by A.T.M. have been impressive: Social Security has nearly
eradicated elderly poverty; Medicare has brought security to old age. But
as the hungry A.T.M. gobbles up the budget, the costs are becoming
clear. Bill Clinton came to office eight years ago pledging big spending
boosts for infrastructure, education and research and development. Yet
such public investments, which dropped from 2.6 percent of G.D.P. two
decades ago to 1.8 percent by 1992, have fallen to 1.6 percent on
Clinton's watch.
These numbers translate into tangible
losses citizens can see and feel. The
national parks budget has declined by 10
percent in inflation-adjusted terms since
the early 1980's, for example, at a time
when park visits and the number of sites in
the system are up 25 percent. At
Yellowstone, families pay $20-a-car entry
fees for the privilege of dodging potholes.
Highways are so clogged that the average
annual delay faced by big-city drivers has
risen to 50 hours from 34 a decade ago.
And has anyone seen a major airport or
inner-city school lately that doesn't look
run-down?
Before this decade is out, the A.T.M. juggernaut could well inspire the
next great overhaul of American politics. "We don't want to have a
government that is consumed only with passing out money," says John
Kasich, the Republican chairman of the House Budget Committee, "and
where all the discretionary programs, whether it's the National Institutes
of Health or higher education, basically get eliminated. That's not an
acceptable proposition."
It is, however, the current plan.
here are a trillion things to know about government spending, but
connoisseurs like to savor a few choice morsels. For starters,
federal spending as a percentage of G.D.P., which economists say is the
best measure of the size of government, is the lowest it has been in
decades.
Spending hovered between 21 and 23 percent of G.D.P. under
presidents Reagan and Bush. Thanks to economic growth and spending
restraint, spending has more recently declined to 18.7 percent and is
headed toward 16 percent. The least understood fiscal fact of our time is
that Clinton was coaxed into balancing the budget downward. If we
were still spending at Reagan-Bush levels, government would have
roughly $300 billion a year more to play with -- enough for seven new
departments of education, say, or a shiny new Pentagon. Instead, after
two terms, a "liberal" president still can't lift Pell grants back to the value
they had in the 1970's, or shake loose a few extra billion to fully fund
Head Start.
This is due, in part, to the rhetorical power of big numbers. In a country
as large as the United States, the tiniest federal program quickly adds up
to billions of dollars. When politicians and newspaper editorialists start
throwing around these figures, it's easy to scare voters and kill off even
the most reasonable, budget-conscious proposals. The budget hawks'
zeal tends to vary inversely with the size of the program under attack.
Zeroing out the perennially suspect National Endowment for the Arts and
its $98 million budget, for example, would finance the Pentagon for three
hours. Foreign aid, at 1 percent of spending, comes to three weeks'
interest on the debt. Before the Welfare Reform Act of 1996, think how
many of the nation's problems were pinned on the 1 percent of federal
spending that went to the 2 percent of Americans known as welfare
mothers. With a little political grandstanding, the most insignificant federal
outlay can be made to look like runaway government.
Then, of course, there's pork, scorned by most right-thinking people as
all that's wrong with our political system. The amplest tallies of these
dubious local projects are $10 billion a year -- a fortune to ordinary
mortals, but half a penny on the dollar for the feds. A little pork goes a
long way to grease the wheels in Congress. One congressman's waste,
after all, is another's hometown jobs program. Suppose a few billion
dollars in repaved roads or silly research grants help seal the deal that
one day makes our pension costs sustainable. Will anyone object all that
strenuously if the price of national solvency includes the Robert Byrd
Judicial Center or the Orrin Hatch Memorial Exit Ramp?
Puny programs aside, few officials in either party ever propose cutting
"big government" at all. Democrats, for example, have all but abandoned
calls for defense cuts. Their timidity makes sense if you stress, as
Republicans do, that Pentagon spending has come down from 6 percent
of G.D.P. at the height of the Reagan buildup to 3 percent of G.D.P.
today. But frame the same issue another way: should we still give the
Pentagon 90 percent of its average cold war funding a decade after the
end of the cold war? Thanks to steady economic growth, both of these
facts are true. But as the current campaign reminds us, such analysis is
beside the point, since Pentagon budgeting is mainly a political exercise.
Democrats call for hikes to avoid being tagged soft on defense, while
Republicans pretend their insistence on a few pennies more proves
Democrats are unfit for world leadership.
Those "radical" Republican plans to scrap entire cabinet agencies back in
Newt Gingrich's heyday were similarly hollow. Take the education
department, where malignant bureaucrats "in sandals and beads" were
said to be destroying the nation's schools. In reality, the handful of
programs that make up the bulk of the Education Department's $38
billion budget have had broad bipartisan support for years. Loan
subsidies and Pell grants, totaling about $12 billion a year, make college
affordable for millions of young Americans. Subsidies of about $15 billion
help local districts teach poor or disabled children. Salaries and expenses
for the department's 5,000 employees come to a little over 1 percent of
its budget. No doubt we should have fired these hippies years ago. But
how would that change a single thing that ails our schools? Republicans
could justifiably argue that a separate cabinet agency wasn't needed to
administer the big education programs, which existed before the
department was set up. But that means Republicans were really peddling
a kind of neutron-bomb education reform -- blow up the agency, yes,
but for heaven's sake, keep everything it does intact. Similar sleight of
hand explains why Republican plans to kill the departments of commerce
and energy would have left 80 percent of the spending untouched.
Meanwhile, even the fiercest Republican revolutionaries don't speak of
cutting big social programs like Medicare, only of slowing their growth.
Around election time, Democrats get red in the face and insist these
measures are an abomination; in the intervening years, they endorse
similar restraints themselves. Since most of these funds go to senior
citizens, the feds now spend seven times more on every American over
65 ($17,688) than on each child under 18 ($2,491). That gap will only
widen. The fact that state and local governments take the lead on school
spending dilutes but doesn't alter the deep gray shade of American public
finance. "Boomers of every political stripe once tended to be idealistic
about what government should be doing," says Steuerle of the Urban
Institute. "Now it turns out that the bequest we may leave our children is
a federal government whose sole purpose is our own consumption in
retirement."
Indeed, even before the boomers retire, the A.T.M. juggernaut chugs
along with enormous power. This year, for example, without anyone
debating or voting on it, spending on Social Security, Medicare and
Medicaid, fueled by automatic hikes for inflation and rising medical costs,
will soar by $45 billion; at the same time, President Clinton will be lucky
to secure an extra $450 million to help schools reduce class size.
So far, we've covered only the government's official spending. Plenty of
de facto spending gets done under the guise of tax subsidies, the back
door to the A.T.M. Tax breaks for mortgage interest payments and
employer-provided health care, for example, come to roughly $150
billion a year. Because tax deductions are worth more to people in higher
tax brackets, such policies perversely shower bigger subsidies on citizens
the richer they are. These subsidies will quietly rise by another $50 billion
over the next five years. "Elect me," the subtitles under both a Bush and
Gore stump speech could well read, "and I'll hike health and housing
subsidies for millionaires, while renters and the uninsured fend for
themselves." As Joe Lieberman might say, "Is this a great country, or
what?"
t's important to be precise about the nature of the threat posed by
government's A.T.M. Cries that the coming surge in health and
pension costs will saddle workers with tax hikes and sink their standard
of living became popular a few years ago, along with the inevitable
backlash against such Gen-X "whining." The real risks are subtler. While
few experts would deny that the boomers' golden years will place a
burden on the young, most also say that steady economic growth will
boost incomes substantially higher than they are today. The richest nation
on earth can plainly afford the baby boom's retirement. The thornier
question is whether Americans will agree to leave room for government
to spend money on anything else. If not, the federal government will start
looking like a family that pulls the kids out of college, lets the house fall
apart and makes mom and dad wear rags, all so that Grandma can have
more cash. Paint the picture with kids who are black and hispanic while
Grandma is white, and the old homestead could get a little tense.
Few Americans would endorse this set of priorities if they were
presented this way, but the A.T.M. state has bred a brand of citizen
delusion that makes dealing with these challenges harder. People tell
pollsters they trust government less than ever, while acting as if the social
programs they cherish -- government's proudest achievement -- simply
fell from the sky. "Tell the government to keep its hands off my
Medicare" is the way one confused woman put it on TV.
If we are to escape these fiscal and psychic straitjackets, the coming
decade is pivotal. Yet with budget surpluses having temporarily replaced
big deficits, there's a complacency in the air about long-term woes.
Liberals prefer to pray: the dire forecasts won't be borne out, they tell
themselves, and if they are, we'll raise taxes (and deficits) high enough to
finance the welfare state we need. Conservatives gloat: the A.T.M. is set
to grind down activist government in ways that a thousand Ronald
Reagan speeches never could.
For voters not happy with either of these postures, the trade-offs loom
large -- what will we give up in the way of entitlements to afford a
government that can actually do something new and innovative? Some
officials, like the Democratic senator Bob Kerrey of Nebraska and the
Republican budget guru Kasich of Ohio, believe it will necessitate a
synthesis of liberal and conservative ideologies -- a kind of "New New
Deal" that pairs restraint on outlays for the elderly with a redesigned
safety net. The aim over time, both suggest, would be to help citizens
build more private wealth and rely less on Social Security, while using
government to wring out (and redeploy) every excess health-care dollar it
can find. The A.T.M. juggernaut would thus be slowed.
For now, however, the federal government is stuck in a holding pattern.
If Eliot Ness symbolized the fed in the 1930's and Neil Armstrong in the
1960's, the figures that embody the millennial American state are
anonymous. They are the countless clerks in bland offices who this year
will process 887 million Medicare claims and 542 million Social Security
payments. Right this minute one of them is sitting at a computer tapping
away at the keys, and if you close your eyes and use a little imagination,
you can hear her clickety-clack blend with the echo from thousands of
other federal claims processors across the land, until the mad rhythm of
finger against keyboard surges in a crescendo worthy of George Orwell,
or at least Rod Serling. This is the sound of your government at the dawn
of the 21st century, and there's little that you -- or Al Gore and George
W. Bush, for that matter -- are going to do about it. |
