Friday, April 20, 2018

Federal Government Has Spending Problem: Taxes Expand, but Spending Soars

Since 1930, the federal government has spent approximately $90.2 trillion and collected $69.7 trillion in taxes, thus adding $20.5 trillion to the national debt, or approximately 104% of total 2017 U.S. output. Adding to the debt problem, the Congressional Budget Office (CBO) recently estimated that the federal deficit will rise by more than $1 trillion yearly by 2020. Big Congressional spenders blame the shortfall on the 2017 tax reform package. But the CBO estimates that tax collections will grow by 10.2% over the next two years, while spending will soar by 13.1%. Thus, the true fiscal culprit is a spending explosion, not a lack of tax collections.

Central to the rising spending problem is the growth in programs such as food stamps (SNAP), Medicare and Medicaid. These three programs will skyrocket by 16.4% by 2020, or two and one-half times the expansion in the overall U.S. economy, to almost $1.4 trillion in 2020. Interest on the accumulated debt for these three programs will amount to almost $50 billion in 2020 alone.

Despite a robust and rapidly growing U.S. economy beginning in 2009 with unemployment rates dropping from 9.3% to 4.1%, the nation's food stamp program has expanded from 33,000,000 recipients in 2009 to 42,600,000 in 2017. This means that more than one of every seven Americans received food stamps in 2017 at a cost of $1,663 per household or $70.1 billion.

In an effort to slow the expansion in these three programs, President Trump last week issued an executive order calling for enforcement of existing work requirements and also reviewing current waivers and exemptions to working. However, since most households receiving food stamps contain a working adult, a work requirement will do little to reduce SNAP, or food stamp, expenditures. A better approach is to lower the income threshold beyond which households lose all, or portion of food stamps. Policymakers that advocate raising taxes to solve the debt problem are shooting at the wrong target.
Ernie Goss

No comments: