FEDERAL BUDGET, SPENDING SOARING ON AUTOMATIC PILOT

Saturday, October 19, 2002

Congress is late passing the budget again, federal revenues shrank in the recession and deficits have returned. To make sense of it all, a useful thing to have handy is a 40-year summary of federal revenue and spending, all in pictures.

The Heritage Foundation has obliged with Federal Revenue and Spending: a Book of Charts (on the World Wide Web at heritage.org/research/features/ budgetchartbook/index.html).

Almost all of the charts are adjusted for inflation, as they should be, but one that isn't is truly startling. In 1965, under Lyndon Johnson, the federal government spent $119 billion. In 2002, under George W. Bush, it will spend $2,032 billion. That's a twentyfold increase. To bring the number home, in the same period of time the average price of a new home went up by a factor of 10.

But new homes today are bigger and better equipped than the ones built in 1965. The government is merely bigger. Federal spending has risen seven times faster than Americans' median income.

And you can't blame the military, either. Defense spending goes up and down, with peaks in 1970 (Vietnam) and again around the time of the Gulf War. But even with the upturn that began in the last couple of years of the Clinton administration, it's only about 10 percent higher in real terms than in 1962. Discretionary spending apart from defense, however, passed defense spending in 1996 and is nearly triple what it was 40 years ago.

But the real problem is that most of the federal budget is on automatic pilot. Discretionary spending, the part of the budget that Congress reviews and appropriates money for each year, has gone up 62 percent since 1962, with most of that increase just in the past five years.

Mandatory spending, mostly entitlements that are not voted on each year, is nearly eight times higher than it was 40 years ago, and the climb has been relentless and steady, regardless of who is president or what party controls Congress.

And it will get steeper when the baby-boom generation begins to move into their Social Security and Medicare years. What does that mean to individual taxpayers? Mandatory spending per taxpayer, adjusted for inflation, was $2,500 in 1962 and $9,300 in 2002.

``Taxpayer'' here is shorthand for individual income tax return filed, so it is more like ``per household'' than ``per person.'' And it should be adjusted down, though I can't judge how far, because many families do not need to file income tax returns but they do have payroll taxes withheld, and those payroll taxes support much mandatory entitlement spending. But a nearly fourfold increase over the course of a working lifetime is quite troubling enough.

The federal government spends more than a quarter of every dollar Americans earn. At the worst it was 34 percent, in 1983 before the Reagan tax-rate cuts fully came into effect.

It might sound pedantic to insist on saying ``tax-rate cuts'' instead of ``tax cuts'' but the distinction is significant. People who say ``tax cuts,'' especially opponents thereof, frequently go on to claim that it was tax cuts that caused the soaring deficit. But they are wrong (and please tell them so for me). Tax revenues increased after the rate cuts went into effect and pulled the economy out of the early '80s double-dip recession. The deficits grew because spending went up even faster than revenues.

Revenues go down in recessions, naturally, but soon make up the lost ground. They're up by more than 50 percent since 1960, with an especially steep rise during the Clinton years to a peak of $15,700 per taxpayer (as defined above) in 2000, before the market crashed. Deficits have returned because the recession has cut revenues and terrorism has prompted more spending on defense. But that's less significant than the fact that everybody knows now that it is possible to eliminate deficits. By the early 1990s, when the new Clinton administration was predicting $300 billion deficits on into an inevitable future, most people had forgotten that.

So far we've just been looking at federal numbers. But state and local spending has been growing faster -- more than double since 1960. The federal burden per taxpayer is $14,700; state and local spending adds $9,100 to that.

The e-mail from Heritage announcing this publication was headed ``cool new info on taxes and spending.'' You could call it cool. You could also call it chilling.