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The
Washington Times January 6, 2004 Even liberal newspapers
have been reporting the story of runaway federal spending with front-page
headlines. During the past couple of years, we have seen the most rapid
increase in federal spending since the Great Society. In 2003, total
federal spending increased 10 percent; in 2002, it increased 7.9 percent.
Recently, I proposed
a Social Security reform plan that relied on a modest restraint in this
wild spending growth to help finance a large personal account option
for working people. The option would allow workers to shift on average
6.4 percentage points of the 12.4 percent Social Security payroll tax
to their own individual investment accounts. Benefits payable from the
accounts would substitute for a portion of the old Social Security benefits
based on the degree to which workers exercised the account option over
their careers. The plan included
four transition financing mechanisms to raise money to continue to pay
current Social Security benefits in full while workers shifted about
half the payroll tax to the accounts. One of these was to restrain the
rate of growth of federal spending by 1 percentage point a year for
just eight years. So, for example, if federal spending on the current
baseline was to grow 7 percent a year for the next eight years, under
this proposal it would grow only 6 percent yearly. The other transition
financing mechanisms were the short-term Social Security surpluses projected
until 2008, higher corporate tax revenues resulting from investment
of the money raised from the stocks and bonds sold to the personal accounts,
and modest transitional borrowing later paid off from surpluses generated
by the reform. Social Security's chief Actuary officially has scored
this plan as achieving full solvency for Social Security, with permanent
and growing surpluses in the program. Just before Christmas,
however, what is becoming the liberal/left party line on this proposal
was presented in a paper by Robert Greenstein and Richard Kogan from
the Center on Budget and Policy Priorities. The last major crusade of
this crowd was to argue that welfare reform with work mandates would
cause widespread financial devastation among the poor. On the modest 1
percent restraint on the growth of federal spending, Messrs. Greenstein
and Kogan report such a limitation would devastate the federal government.
It would require elimination of "close to half of nondefense discretionary
spending outside of homeland security." This is even farther from
the truth than their line on welfare reform. The proposed spending
limitation does not require any reductions in federal spending. It just
modestly reduces the rapid growth in that spending. If the federal government
grows 7 percent a year for the next eight years, at that point it would
be 72 percent larger than today. If under the spending growth restraint
it grows only 6 percent a year, then after eight years the federal government
would still be 59 percent larger, not devastated, nor cut in half. In 2003, federal
spending grew by $201 billion. The proposed spending restraint would
have limited it to grow by a still way too large $180 billion. Suppose
we set aside from that increase the $71 billion supplemental for the
War on Terrorism. Federal spending would still have increased by 6.4
percent for the year, or $129 billion. The proposed spending restraint
would still have allowed spending to increase by a still too large $109
billion. Moreover, the proposed
spending restraint is not limited to "nondefense discretionary
spending outside of homeland security." The proposal excludes Social
Security and debt interest from the spending restraint. Assume no spending
changes in Medicare as well since Congress just reformed that. To meet the targeted
spending restraint with those exclusions, the growth of the rest of
the federal government would have to be reduced by 1.7 percentage points,
a still quite modest restraint. According to the Heritage Foundation,
discretionary spending increased by 12 percent in 2003 and 13 percent
in 2002. Moreover, if the
spending restraint is targeted on the most wasteful spending, the growth
in the rest of the budget would not have to be limited by even this
much. Corporate welfare is estimated to cost at least $50 billion per
year. Eliminating that alone would provide the necessary spending restraint
for more than two years. Even with the War on Terror, we also still
have many unneeded military bases inside the U.S. that should be closed.
The Feds also provide
lavish farm subsidies that will probably have to be eliminated under
international trade obligations anyway. Entitlement reform is still
much needed even outside of Social Security and Medicare. Some additional
low priority items could easily be delayed as well. All this adds up
to much more than would be needed under the proposed spending restraint.
By relying on a
modest spending restraint to help finance the transition, the proposed
Social Security reform plan is a valuable vehicle for starting to get
wild federal spending growth under control. Over the long run, a much
stricter, permanent restraint on federal spending growth should be adopted.
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