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Federal Tax Revenues Up.

Tax revenues are not as exciting a topic as Britney Spears' pregnancy, Will Smith's new "edgy" album, what all those zany Desperate Housewives characters are doing, Michael Jackson's child molestation trial, and some of the other headlines dominating the news today, but let's look at numbers anyway, ever briefly:

The Treasury Department recently released (in .pdf format) data on government revenues and expenditures for the month of March. There was good news and bad news.

First, the good news (if you want lower deficits, at least):

Thus far in Fiscal Year 2005 (federal fiscal years actually start in October of the previous year), tax receipts are up 10% compared to this point in Fiscal Year 2004. Clearly, the economy has rebounded, and, even with the President's tax relief packages, revenues flowing into the Treasury are up.

But there's also not-so-good news.

Expenditures, already starting higher than revenues, are also up year-over-year. Thus far, expenditures in FY-2005 have grown by 7%, which is, however, slower than revenue growth.

From where have the bulk of the expenditure increases come?

Entitlements, mostly, plus national security (all numbers expressed in millions):

Brian Reidl has more specifics on how your tax dollars will be spent in 2005:

Washington will spend $22,039 per household in 2005....

Social Security/Medicare: $7,245.

Defense: $4,451.

Low-income programs: $3,559.

Interest on the federal debt: $1,582.

Federal employee retirement benefits: $838.

Education: $627.

Health research/regulation: $614.

Veterans’ benefits: $606.

Highways/mass transit: $388.

Justice administration: $361.

Unemployment benefits: $338.

International affairs: $284.

Natural resources/environment: $275.

Agriculture: $271.

The remaining $598 is allocated to all other federal programs, including social services, space exploration, air transportation, and community development.

Here is a look at spending increases from last year, sorted by actual dollar increase, plus percentage of the overall increase:

Sorted by percentage increase for each program:

This is a good way to think about just how little Congress or the President can even do to control spending. Most of the budget is automatic entitlement spending, plus national security spending. Increasing or decreasing funding for other government programs makes almost no dent in the overall budget picture, simply because of the mammoth size of programs like Social Security and Medicare.

President Bush and Congress over the past few years have overseen exploding expenditures in the federal budget, despite efforts to keep non-security discretionary spending under relative control:

Think about it for a minute.

A. Revenues coming into the government are back up.

D. Entitlement spending is out of control, with no relief on the horizon.

What would a forward-thinking politician derive from all this? What should each and every elected official be obsessed with right now?

GETTING ENTITLEMENT SPENDING UNDER CONTROL.

How to do this?

SOCIAL SECURITY REFORM + MEDICARE REFORM.

Some believe President Bush has his priorities out-of-order for tackling Social Security reform before Medicare reform.

Michael F. Cannon, writing in National Review, disagrees:

Yes, Medicare is worse off, and both programs demand fundamental reform. But why start with Social Security? First, Social Security reform is less complicated. Benefits are paid in cash and are thus relatively predictable. Shoring up its deficits will require one or more of the following: payroll tax increases, benefit cuts, raising the retirement age, or creating personal-retirement accounts for today's workers. Medicare "pays" seniors with health care, making spending reductions more complicated. The government must grapple with defining what benefits and procedures are covered, who can access them and when, and how to set reimbursement rates for doctors and hospitals. Deciding these issues involves analyzing voluminous data from the past and projecting health-care costs and needs for the future.

Second, Social Security reform is farther along. The idea of pre-funding future Social Security obligations through personal-retirement accounts was first advanced over 20 years ago. To date, much less research has been done on pre-funding Medicare's liabilities.

Third, tackling Social Security now will make Medicare reform easier down the line. If we can create personal-retirement accounts in Social Security, we can dispense with the myth of a "third rail" and convince workers and seniors that ownership-based reforms can save Medicare as well as Social Security. The Bush administration is hesitant to suggest Medicare reform because of the bitter wrangling that occurred over the 2003 prescription-drug benefit. Better to wait a few years than to tinker with Medicare while that law is being implemented, in their view.

Republicans in power today have a mixed record on tackling entilements. The opposition to Social Security reform is a clear example of how entrenched special interests always seem to demand more funding for more programs, while there are very few organizations devoted to eliminating programs and cutting back spending. The President's FY-2006 budget was met with typical opposition from left-wing groups that claimed it would "gut" this program and that; Senate Minority Leader Harry Reid asserted:

"This document is immoral for what it does to those who can't defend themselves."

It's the ratcheting-up effect in action. Spending goes up, but, contrary to the very laws of nature, it never seems to come down. While Republicans have had a mixed report card on controlling spending in recent years, the Democrats have almost unanimously failed. For the left, opposition to discretionary spending reductions is only the tip of the iceberg; their insistence that the deficits we face today are primarily the result of the President's tax cuts (which have revived growth in the economy and boosted federal revenues once again) is the base of the iceberg.

Their ideological opposition to crucial entitlement reforms, however, compared to that iceberg, is the entire continent of Antarctica.

Posted by Will Franklin · 15 April 2005 03:25 PM

Comments

Posted by: Gotham Image at April 19, 2005 01:10 AM

Posted by: serkan saatci at May 7, 2005 08:01 AM

Posted by: Wm. Drucker at August 11, 2005 07:20 PM