Etalkinghead

While Mr. Bush is hawking his Social Security changes, some in the GOP are trying to get him to focus on tax policy and fixing the budget deficit. While their hearts are in the right place, Mr. Bush and his staff know full well that they have a much better chance of creating a legacy in Social Security reform (deform?) than in balancing the budget and fixing the American tax code.

Believe it or not, the IRS provides a good explanation of federal expenditure (NOTE: this is a big PDF file, patience is a virtue) in every income tax instruction booklet. In the instructions for the long form, it’s on page 74 this year, and while simplistic, it is accurate and clear. In the text below the pie-chart, one learns that the feds spent $2.2 trillion in 2003 (the most recent year for which Uncle Sam has figures, and 2004 wasn’t much different), with income of $1.8 trillion, resulting in a deficit of $0.4 trillion (which is what the IRS calls $400 billion).

The first thing the reader notices in the chart is that Social Security, Medicare and other retirement payments eat up 37% of federal outlays. These are considered non-discretionary under law, meaning the government has to pay these benefits under previous legislation and taxation rules. That’s about $815 billion (forgive me if rounding gives figures slightly different from those in other sources) that can’t be touched without the kind of full blown political effort Mr. Bush has started on Social Security.

Next, there’s 7% of outlays in interest on existing debt. That’s right, if there were no federal debt, we’d save $154 billion in debt payments. That can’t be touched either. So far, $970 billion or so is off limits out of $2.2 trillion.

Next, there’s defense and foreign affairs. That takes up 22% of federal outlays. And the IRS is kind enough to break that down further. Some 18% of federal outlays, just about $400 billion (or about the size of the 2003 deficit) went to pay for the military – equipment, pay to privates and generals, modernization, etc. Another 3% goes for veterans’ services, and about 1% went for “international activities, including military and economic assistance to foreign countries and the maintenance of US embassies abroad.” Since the nation is at war, or at least the military is (we don’t have any ration books or undergo duck-and-cover drills), I don’t think politically the 18% is on the table, and 3% for our vets is rather tightfisted, frankly. Maybe we could slash aid to all those foreigners who vote against us in the UN, but that doesn’t amount to much.

The thinnest wedge of the federal pie, at 3%, is law enforcement and general government. That’s things like salaries for the FBI, customs, and Mr. Bush’s pay check. Even if that went away entirely, it doesn’t do more than dent the 18% deficit.

So, that leaves the two sections of the pie that are politically attractive to Mr. Bush for paring — as the IRS labels them “Social Programs” (21% of outlays) and “physical, human, and community development” (10%). Social programs spend 14% of federal outlays on things like “Medicaid, food stamps, temporary assistance for needy families, supplemental security income, and related programs.” The other 7% of outlays under this heading cover “health research and public health programs, unemployment compensation, assisted housing, and social services.”

“Physical, human, and community development” spending, some $220 billion, goes on agriculture, natural resources, environment, transportation, primary and secondary education aid, direct aid to college kids, job training, deposit insurance, commerce and housing credit, community development; and space, energy, and general science programs.

Clearly, there are areas under these two headings that Mr. Bush’s proposed budget does cut (e.g., agricultural subsidies and Amtrak payments). Others are untouchable, like supplemental security income, which Uncle Sam says is “designed to help aged, blind, and disabled people, who have little or no income; and it provides cash to meet basic needs for food, clothing, and shelter.” No congressman wants to run for re-election having voted to take money away from those least able to provide for themselves. Libertarian ideologues may argue that the government shouldn’t provide anything, that it is a private sector issue, but they don’t have to explain their votes to angry constituents.

As it is, Mr. Bush is ambitious in trying to cut 9% of outlays in four years (thus halving the deficit) by looking at only 31% of outlays. Realistically, that 31% is more likely around 25%, once a few sacred cows are acknowledged (unemployment insurance, deposit insurance, etc.).

Of course, if his tax cuts were to lapse, the extra revenue would just about wipe out the deficit under most realistic models. Yet, he insists on making them “permanent.” (Note to Mr. Bush: Your successor can undo anything you do). So the only alternative is to cut non-discretionary, non-defense spending very deeply. Going down in history as the great program cutter doesn’t really appeal. That’s why he’s looking at Social Security rather than fiscal balance for his legacy; it’s just not as improbable.