While some aspects of the recently passed “stimulus” legislation may, in fact, be temporary — such as funding for state “fiscal stabilization” and expanded unemployment-insurance benefits — much of it will find its way into the permanent base of federal activity.
There are large increases in funding for Head Start ($2.1 billion), K-12 education ($26 billion), Pell Grants ($15.6 billion), the National Institutes of Health ($10 billion), and job-training programs at the Department of Labor ($4.3 billion), among other things. The bill also initiates several new programs, including a health-insurance subsidy arrangement for workers who are between jobs ($25 billion), a “prevention and wellness” fund at the Department of Health and Human Services ($1 billion), and funds for doctors and hospitals to buy health-information-technology software and equipment ($23 billion).
The contention that these programs, once started or expanded, will revert back to their previous levels of activity, or even disappear altogether when circumstances warrant, runs counter to all experience and common sense. Program enrollees, local school boards, health researchers, university administrators, IT firms, transportation-construction companies, and countless new government contractors and employees will soon be ready to argue that disaster awaits any attempt to return government to its pre-stimulus size.
Consequently, the bill President Obama signed this week will cost much more than the advertised $800 billion. Funding for its health, education, and labor programs alone will add at least $100 billion per year to the permanent federal budget, or some $900 billion more over ten years than the official cost estimate from the Congressional Budget Office (CBO).
Now, having succeeded in getting through Congress the largest unfinanced expansion of government since the 1960s over the near-universal objection of Republicans, President Obama says it’s time for the two parties to sit down together and get serious about “fiscal responsibility.”
Our fiscal problems are not entirely stimulus-induced, though. Even if the economy were performing well, we would be facing deficits in the highly problematic range of 5 to 6 percent of GDP, assuming continuation of President Bush’s tax policies and ongoing engagement in Iraq and Afghanistan. A fiscal correction was going to be needed no matter what. But the “stimulus” bill has unquestionably made matters worse by adding large amounts of unnecessary spending to the budget just as the country is about to take on the costs of the baby-boom retirement.
Between 2007 and 2020, the population aged 65 and older is expected to increase from 38 million to 54 million people. By 2030, federal spending on Social Security and Medicare alone will reach 11.7 percent of GDP under current law, up from 7 percent today. That jump — 4.7 percent of GDP — is more than the entire 2009 budget for national defense.
The official agenda for the coming “summit” has not been released, nor has a list of invitees, but Obama has been signaling for weeks now that he plans to launch a bipartisan effort to address the nation’s “mid-term and long-term” fiscal problems.
Certainly, nothing is more important for the future prosperity of the country than genuine, lasting entitlement reform. But is there any reason to believe Obama will support reforms with bipartisan appeal?
It is worth remembering that Obama already has a Social Security plan. During the 2008 campaign he opposed raising the retirement age and all but said he would oppose benefit reductions, too. Instead, he favors closing the program’s financing gap with a two- to four-percentage-point increase in the payroll tax for households with incomes exceeding $250,000 per year (the current tax rate is 12.4 percent). That would effectively break the historic link between contributions and benefits and turn FDR’s earned entitlement into another welfare program. Not exactly an approach with bipartisan potential.