Why Spending?

The United States government has taken on $19.5 trillion in debt, more than doubling the amount of total debt in just the last decade. Breaking that total down to an individual basis, each American’s share of the national debt is nearly $60,000.

 

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Spending has remained the biggest key variable driving deficits and debt.

 

While revenues have remained relatively static over time, spending has acted as the primary debt driver.

 

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American Healthcare entitlements – Social Security and Medicare – are on course to be completely bankrupt by the 2030s. The retirement of the “baby-boomer” generation will bring an estimated 30 million retirees into these programs, pushing the rate of beneficiaries even higher. Without the proper reforms, middle-aged and younger Americans face a great deal of uncertainty when planning for their retirement.

 

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America’s third healthcare entitlement program – Medicaid – is the largest budgetary item for all state governments. On the federal level, $265 billion, or 13% of all mandatory spending, was spent on Medicaid in 2013 alone. These numbers will only continue to swell as the Affordable Care Act (ACA) is implemented, which costs $110 billion in 2016 alone.

 

Spending at the Pentagon must also be scrutinized. The Department of Defense spends more on defense than the next 7 military budgets combined, and Pentagon spending is the single largest item of discretionary (non-entitlement) spending. For example, during FY 2014, the total military budget grossed over $3.3 trillion with nearly $9 billion allocated for interest payments for the wars in Iraq and Afghanistan. To properly care for our veterans and protect our country, we must have a well-run, efficient Pentagon.

 

Such high a large debt burden is extremely detrimental to economic growth. The uncertainty created by this fiscal debacle decreases investment and development of capital goods. Further, this lack of investment weakens economic growth and increases unemployment.

 

The political considerations around raising taxes are a matter for another discussion, but needless to say, doing so is tricky at best. Further, even if one were to advocate raising taxes as a solution to deficit and debts, no level of taxation could solve our current and long-term budget shortfalls, as spending will very soon begin to rise far faster than revenues. The Institute does not take a position on taxes — but regardless of where one falls in this debate, spending must be addressed primarily.