Getting a Grip on Federal Spending

Author: Jennifer G. Hickey

Published: September 1, 2003

The PBGC's troubles most directly affect individual pensioners, but Congressional Budget Office [CBO] Director Douglas Holtz-Eakin contends they also have a larger impact on taxpayers as a whole. In testimony before the House Budget Committee, Holtz-Eakin said the PBGC exemplified the "significant fiscal exposures that are not fully counted in the [federal] budget" and therefore should be a factor in future budgeting. He said the CBO projects those fiscal demands "on the basis of current rules for benefits, and federal spending, excluding interest payments, will rise as a share of national income from the level of roughly 18 percent in 2002 to about 28 percent by 2075," in large part stemming from "federal policies aimed at improving the well-being of retirees, the disabled and the chronically ill."

Annual budgets may reflect short-term obligations assumed by the government, House Budget Committee Chairman Jim Nussle [R-Iowa] declared, but they do not adequately account for the continued growth of government spending, which now makes up 20 percent of spending, as opposed to 10 percent after World War II. Nussle said spending on Social Security, Medicare and Medicaid soon will account for 20 percent of the U.S. economy.

Limiting projections to five or 10 years may be suitable for some spending provisions, Holtz-Eakin said, but is "especially deficient when evaluating the implications of changes in entitlement programs," such as the pending Medicaid prescription-drug plan. The cost cited for that program is approximately $400 billion from 2004 through 2013. However, the CBO director said, "under reasonable assumptions about future drug spending and demographics, costs would exceed $1 trillion and could approach $2 trillion during the following decade." That commitment should be captured in future budget decisions, he said.

William G. Gale of the Brookings Institution's Tax Policy Center agreed that entitlement programs place a burden on the economy, but said aggressive tax-cutting and "removing the sunsets have long-term fiscal implications that are greater than those that arise from fixing the entire social security [sic] problem."