'Fundamental Disconnect' Between Government Revenue and Public Spending Expectations

by: Tim Iacono

Caroline Baum is back from vacation and has these thoughts to share about the relationship between how much money the government takes in and how much it spends.

Pick up any newspaper and you’re bound to see a prominently featured story about someone somewhere losing a government benefit and enduring hardship as a result.

The New York Times is publishing a series of such stories under the rubric, “The New Poor.” Last week’s installment focused on a 22-year-old unemployed single mom from Arizona who qualified for state-run subsidized child care but was placed on a waiting list because budgetary constraints forced cutbacks in the program.

We feel for this mom whose work options are limited by the need to care for her 3-year-old daughter. We all know someone who has been left jobless, financially strapped and emotionally bereft by the recession. Yet, at the risk of sounding hard- hearted, the U.S. can’t afford to provide everyone with food, clothing and shelter, not to mention medical and child care, college tuition, a low-interest mortgage and a Social Security check until death.

As much as this single mom’s plight tugs at our heart strings, using deficit financing to provide her with government subsidized child care is dangerous to her child’s health. That child will have to shoulder the bill. That’s the pain we don’t feel or hear about; the pain that doesn’t make its way into news stories, at least not in human terms; the pain that’s no less real, just less pressing.

That sort of makes you think twice about little girls like this whose parents may have a different view of where this might all lead.

While not pecking away at a keyboard at Bloomberg over the last week or so, Caroline apparently stumbled upon a new blog over at the CBO (Congressional Budget Office) that might be worth a look – here’s a link to the CBO Director’s Blog and here’s what showed up there not long ago regarding the government’s inflows and outflows.

The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services,” Douglas Elmendorf, director of the non-partisan Congressional Budget Office, writes in a May 17 blog post.

Addressing the current tax and spending gap to make fiscal policy sustainable is “an urgent task for policy makers,” Elmendorf says.

Devout Keynesians will have none of it. They’re concerned the government is doing too little. The U.S. isn’t borrowing and spending enough, they say, as if today’s spending is a free lunch or a free ticket to prosperity.

Even when the spending stops, the interest on the debt keeps on giving. The CBO projects that under current law, net interest on the debt will reach $723 billion in 2020, up from $207 billion this year. Ten years from now, five categories — Social Security, Medicare, Medicaid, defense and net interest — will account for three-quarters of government spending. Four of them are on automatic pilot.

From there, the many figures related to the nation’s large and growing debt get very depressing – though, that doesn’t mean you should stop reading – and you quickly realize that we’re headed for trouble, perhaps sooner than anyone would like to believe, with or without the help of the Keynesians.