Friday, November 03, 2006

Paying the Piper

The money that congressional candidates are spending for television ads for Tuesday’s election is estimated at two million dollars and rapidly heading toward the three million mark. With all that money sloshing around, voters might want to have a few facts about the nation’s finances and projected spending to ask congressional candidates their position on the U.S. economy.

A good place to start is the “big picture” from none other than David Walker, the Comptroller of the United States and the head of the Government Accountability Office (GAO), one of Congress’ investigative organizations. Walker, who has seven years remaining on his fifteen-year appointment, is criss-crossing the nation with a single message: the U.S. economy is barreling down the track without any brakes, wiper blades, or a steering wheel – with a hairpin curve dead ahead.

In a democracy, things get done when a strong plurality – better yet, a majority – become convinced that action is needed. Walker is out to get action on the debt – which means on the deficit either by cutting entitlements, raising taxes, or some combination – by barnstorming the country to give voters the facts and the figures to challenge the new Congress to act.

Currently, the national debt stands at $8.5 Trillion. Walker estimates that another $2 Trillion is being added every year that nothing is done – at a minimum. In four more years, the leading edge of the baby-boomers will hit Medicare age. This program already comprises 13 percent of the budget and by 2030 will be at 25 percent under current entitlements. But even before that, in 2008, the first “early” retirees” (age 62) will start drawing Social Security. And while the Social Security tax still collects more than is paid out in benefits, that program is also heading for a deficit of $8 Trillion.

Add in Medicaid and the ever-increasing amounts needed just to pay interest on the debt, and projections out to mid-century place the national debt around $46 Trillion, an amount that next generations will confront.

Big bucks are also being funneled to the Pentagon – and that’s on top of the big bucks already going there. A prominent Washington military analyst told wire service representatives that the air force is asking for $50 billion in supplemental funds for the current fiscal year (2007). That’s nearly half of the service’s approved budget for 2007 -- $105.9 billion. Never one to be looking behind, the Air Force reportedly is also planning on another $50 billion supplemental for 2008.

The Army has already made public its 2007 supplemental “bottom line” – $80 billion. How much the Marines will request is still being worked out. But in a new twist, the Office o Management and Budget has advanced the Pentagon $11 billion dollars on its Fiscal Year 2008 budget to cover “high priority” special projects. OMB actually allocated the money last month, just after Congress passed the Defense appropriations bill for 2007. The Army is to get $7 billion, the Air Force and Navy/Marines one billion each, with the remaining $2 billion to be allocated by the Deputy Defense Secretary before the end of the calendar year. A quick check – by no means comprehensive – indicates that “advances” have occasionally been made for education, where specific costs could be projected, but defense?

And speaking of the Army’s successful bid for more money, a colleague, Chris Hellman, noted that the Chief of Staff of the Army has again rolled out the old “defense spending as a percent of Gross Domestic Product is at historic lows” argument.

While technically correct, in actual inflation-adjusted dollars, the defense budget (which does not include the money for Iraq and Afghanistan which are “off budget”) 15 percent above the Cold War average – with a force one-third its 1990 size. In real terms, annual defense spending (minus Iraq and Afghanistan) has gone up $120 billion since September 11, 2001 – a rise of 35 percent. The reason the defense budget is a smaller percentage is that in the same time period, GDP has increased by 42 percent.

One thing that is absolutely dumb is to set spending at an arbitrary percentage rather than responding to actual conditions or needs. Under a percentage approach, should GDP decline – which might be the result of run-a-way debt – would the Pentagon argue to decrease its budget to stay at a predetermined percentage?

Hardly.

Thanks, Chris.

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