Open letter to President Obama (Part 326)

(This letter was emailed to White House on 11-21-11.)

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

We got to balance the budget and get entitlements under control.

Federal Spending by the Numbers – 2012

By
October 16, 2012

Introduction

The federal government has closed out its fourth straight year of trillion-dollar-plus deficits, and the imperative to rein in spending has never been greater. Because all government spending gets paid for through either taxes or borrowing—both of which burden the economy—spending reduction is an essential condition for promoting economic growth.

As this 2012 edition of Federal Spending by the Numbers shows, total federal spending for fiscal year 2012[1] reached $3.6 trillion, or 22.9 percent the size of the entire U.S. economy. In the past 20 years, federal outlays have grown 71 percent faster than inflation. The average American household’s share of this spending is $29,691, roughly two-thirds of median household income. This relentless growth is projected to continue, pushing total government outlays to $5.5 trillion a decade from now, and to about 36 percent of gross domestic product (GDP) in the next 25 years.

Federal entitlements are driving this spending growth, having increased from less than half of total federal outlays just 20 years ago to nearly 62 percent in 2012. Three major programs—Medicare, Medicaid, and Social Security—dominate in size and growth, soaking up about 44 percent of the budget. All three programs are growing faster than inflation, and—when joined with $1.7 trillion in new Obamacare spending—will drain about 18.5 percent of the nation’s total economic output by mid-century. Because that is about the historical annual average of total federal tax revenue, it means all other government programs—national defense, veterans health care, transportation, federal law enforcement, and others—would effectively have to be financed on borrowed money.

Other entitlements continue growing as well. Anti-poverty programs have surged by 49 percent in just the past decade, even after adjusting for inflation. Spending for food stamps alone has more than tripled since 2002. Health programs, including Medicaid, have increased by 38 percent, and housing assistance by 48 percent.

Although these entitlement programs have dominated the government’s spending growth, discretionary spending—spending authorized by annual appropriations bills—also has grown by 40 percent more than inflation, to $1.289 trillion. Spending on non-defense programs has grown 29 percent. These outlays peaked in 2010 due to the stimulus bill, but remain 7 percent higher than their pre-stimulus level of 2008.

The result of this increasing deficit spending—which is financed by borrowing—is growing debt. If current policies continue, debt held by the public will approach 90 percent of total economic output by 2022, and will be twice the size of the entire economy 25 years from now.

There is still time to change course—but that time is growing short. The Heritage Foundation’s budget plan, Saving the American Dream,[2] reforms entitlements to make them affordable and sustainable, reins in other spending while adequately funding defense, and balances the budget in 10 years. The budget can be put on a stable, sustainable course if policymakers act soon.

Overall Budget Trends

  • Over the past 20 years, federal spending grew 71 percent faster than inflation.
  • Entitlement spending more than doubled over the past 20 years, growing by 110 percent (after adjusting for inflation). Discretionary spending grew by 60 percent.
  • Deficits have pushed up the debt each year since 2002 as federal spending exceeded revenue. Fiscal year 2012 marked the fourth consecutive year of $1 trillion deficits.
  • Although debt held by the public surged from 33.6 percent of gross domestic product in 2002 to 73 percent in 2012, net interest costs have held below 2 percent of GDP because interest rates have fallen to all-time lows.
  • In 1962, defense spending was nearly half the total federal budget (49 percent); Social Security and other mandatory programs were less than one-third of the budget (31 percent). Two major entitlement programs, Medicaid and Medicare, were signed into law by President Johnson in 1965.
  • In 2012 entitlements were nearly 62 percent of total spending, while defense dropped to less than one-fifth (18.7 percent) of the budget.

Overall Spending Trends

  • Federal spending per household reached $29,691 in 2012, a 29 percent increase (adjusted for inflation) from $23,010 in 2002. The government collected $20,293 per household in taxes in 2012.
  • The excess of spending over taxes produced a budget deficit of $9,398 per household in 2012.
  • For every $6.80 the federal government collected in taxes in 2012, it spent $10. Consequently, $3.20 out of every $10 spent was borrowed.
  • Major entitlements (Social Security, Medicare, Medicaid, Children’s Health Insurance Program, Obamacare) will increase from 44 percent of federal spending in 2012 to 57 percent in 2022.
  • Entitlement programs and net interest costs will reach 67 percent of federal spending in 2022, crowding out spending on national defense and all other programs.

Where the Money Goes

  • Total federal spending has grown 43 percent faster than inflation in just the past 10 years.
  • Some of the largest growth in federal spending has been in K–12 education, a state and local priority.
  • Food stamps and other nutrition programs also have more than doubled in the past 10 years. Food stamp participation rates also more than doubled, growing from 19.096 million recipients in 2002 to 44.709 million by 2011.
  • In 1993, Social Security surpassed national defense as the largest federal spending category, and remains first today.
  • Federal energy spending has increased steadily over the past decade with the government increasingly subsidizing activities like energy efficiency, energy supply, and technology commercialization. An unprecedented $42 billion was spent in 2009 as part of the stimulus, a nine-fold increase over the 2008 spending level.
  • Interest on the debt is the fifth largest federal spending category, even at today’s low interest rates.

Spending Is Causing Damaging, Structural Budget Deficits

  • The budget deficit results from the government spending more than it collects in taxes during a given year. The government must borrow to cover the excess spending.
  • The $1.1 trillion deficit in 2012 marked the fourth consecutive year the deficit exceeded $1 trillion.
  • The 2012 $1.1 trillion deficit was $953 billion (in inflation-adjusted dollars), or 547 percent, greater than the pre-recession and financial contagion deficit in 2007 of $174 billion.
  • The 2012 deficit was an estimated 7.3 percent of GDP; the historical average is 2.1 percent of GDP.
  • Deficits will not fall below $760 billion (in inflation-adjusted dollars) over the next 10 years and have only been higher in the period immediately after World War II.

Spending Increases Driving Debt Growth

  • Structural budget deficits—driven largely by increased spending—are causing increasingly high levels of debt, which will threaten the economy.
  • Debt held by the public reached 73 percent of GDP in Fiscal Year 2012. The historical average is 37 percent of GDP.
  • Debt will reach nearly 90 percent of GDP by 2022. Levels this high damage the economy.
  • Debt will surge to 200 percent of GDP in 25 years.
  • Debt at the end of Fiscal Year 2012 was twice its 2007 pre-recession and pre-stimulus level of 36 percent of GDP.
  • Debt in 2022 will be 90 percent of GDP. The highest level recorded previously—96.2 percent of GDP—was in 1947.
  • Debt climbed from just over half of GDP in 2009 to nearly three-fourths in 2012.

Discretionary Spending

  • Discretionary spending is set annually by Congress through appropriations. Today, it constitutes about one-third of total federal spending.
  • Since 2002, discretionary outlays surged 40 percent faster than inflation.
  • In 2012, the federal government spent $1.289 trillion on discretionary programs. Of that amount, $669 billion went to national defense (including operations in Iraq and Afghanistan) and the remaining $620 billion funded nearly all other federal programs including education and transportation.
  • Stimulus spending caused discretionary spending to peak in 2010. It is still 7 percent higher than its pre-stimulus level of $1,205 billion in 2008.
  • Budget surpluses in the late 1990s were fed largely by deep defense cuts that gutted the military, while non-defense discretionary spending continued growing.
  • After 9/11, the Bush Administration began replenishing base defense spending, as well as funding the war against terrorism.
  • Recent declines in defense spending are due to reductions in war spending and cuts to the core defense budget.

Base Spending Continues Growing

  • In 2009, Washington spent $440 billion on temporary measures, such as the financial bailouts, the economic stimulus, and the global war on terrorism.
  • In 2012, this temporary spending fell to $211 billion as the stimulus and financial bailouts waned.
  • Base spending was 13 percent higher, adjusted for inflation, in 2012 than in 2008, before the financial bailouts and the stimulus.
  • Even after the temporary spending ends, base spending (excluding the war on terrorism) will grow by 33 percent, adjusted for inflation, over the next decade.

The Major Entitlement Programs

  • Entitlements run on autopilot, with annual spending determined by benefit formulas, caseloads, and economic factors. They are not budgeted annually, which makes entitlement spending difficult to control.
  • All entitlements (excluding net interest) total nearly 62 percent of all federal spending today.
  • Spending on the largest, Social Security, Medicare, and Medicaid, will leap from 10.4 percent of GDP in 2012 to 18.2 percent by 2048.
  • The big three entitlements alone will absorb all tax revenues by 2048. Other spending, such as national defense or interest on the debt would have to be financed completely on borrowed money.
  • Medicare is the fastest-growing major entitlement, growing 68 percent since 2002. Medicaid grew 38 percent and Social Security 37 percent.

Obamacare’s Spending

  • Obamacare will spend $1.7 trillion (over 10 years) on its coverage expansion provisions alone, including a massive expansion of Medicaid and federal subsidies for the new health insurance exchanges.
  • Obamacare will increase federal health spending by 15 percent, bringing it to 44 percent of all mandatory spending.
  • Obamacare’s 18 new or increased taxes and penalties raise $836 billion in new taxes between 2013 and 2022.
  • Obamacare also includes $716 billion in spending cuts to Medicare, which are used to help offset new spending on non-Medicare provisions.
  • The Medicare chief actuary warns that these cuts are unrealistic and unsustainable. Therefore, Obamacare will likely add billions to the budget deficit.
  • Under Obamacare, all government health spending (including state and local) is projected to be nearly 50 percent of all health spending by 2021. Federal spending will account for two-thirds of total government health care spending.
  • Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.Sincerely,

    Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

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