Government Spent $29,000 Per US Household in 2014 by Gary D. Halbert
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
December 23, 2014
IN THIS ISSUE:
- Uncle Sam Spent $29,000 Per Household in 2014
- New Heritage Foundation Study on Federal Spending
- Government Spending Over $3.5 Trillion Last Six Years
- Entitlements & Interest to Hit 85% of Spending in 2024
- What is Driving the Growth in Entitlement Spending?
- Federal Spending Per Household to Double in 10 Years
Uncle Sam Spent $29,000 Per Household in 2014
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A new study from The Heritage Foundation found that out-of-control spending in Washington amounted to more than $29,000 per household in fiscal year 2014. Today, I will reprint the highlights of that excellent report. As you will see below, government spending has topped $3.5 trillion in each of the six years that President Obama has been in office.
The budget deficit for FY2009 more than tripled to over $1.5 trillion, thanks in large part to Obama’s $800+ billion “stimulus program” which did little to create new jobs or spark the economy. Budget deficits remained above $1 trillion for 2010, 2011 and 2012. While deficits have come down significantly in the last two years, our debt trajectory remains on a collision course as the latest Heritage Foundation study illustrates. Let’s get into it. We have a lot of charts today.
Federal Spending by the Numbers, 2014
Heritage Foundation – Romina Boccia & John Flemming
In 2014, federal spending reached $3.5 trillion and the deficit was $486 billion. Compared with trillion-dollar deficits following the Great Recession, this presents a small and temporary improvement in the nation’s fiscal situation. However, this minor improvement does not mean that government can stop cutting back on spending. As the figures and graphics in this report show, that would be the wrong conclusion to draw.
The national debt will still reach nearly $18 trillion this year [already has] and it already exceeds 100 percent of gross domestic product (GDP). Publicly held debt (that is, debt borrowed in credit markets, excluding Social Security’s trust fund), is alarmingly high at three-quarters of GDP. Without further spending reforms, rising debt threatens to impede growth, harm Americans’ economic opportunities, and even threaten the nation’s security.
Deficits fell in 2014 because President Obama and Congress raised taxes on all working Americans, the economy saw some improvement which helped to bring in more revenue, extended unemployment benefits were allowed to expire, and spending cuts from sequestration and spending caps under the Budget Control Act of 2011 took effect.
Congress should not take this short-term and modest deficit improvement as a signal to grow complacent about reining in exploding spending. Existing spending cuts and tax increases will not prevent deficits from rising next year, and before the end of the decade exceeding $1 trillion again. Driving this is federal spending, which is projected to grow by 66 percent by 2024.
The nation’s long-term spending trajectory remains on a fiscal collision course. Social Security, Medicare, Medicaid, and Obamacare are too large and growing rapidly. While the Budget Control Act of 2011 and sequestration are modestly restraining the discretionary budget, mandatory spending—including entitlements—continues to grow nearly unabated. Eighty-five percent of the projected growth in spending over the next decade is due to entitlement spending and interest on the debt. Obamacare is the largest driver of increasing federal health care spending, and it alone will add $1.8 trillion in federal spending by 2024. [Emphasis mine.]
While mandatory spending is growing out of control and needs reform, there are also plenty of items to cut in the rest of the budget. For example, the National Institutes of Health spent $387,000 to study the effects of Swedish massage on rabbits, and according to a report from the Government Accountability Office, duplication of federal programs and services could cost taxpayers $45 billion annually.
Lawmakers should eliminate waste, duplication, and inappropriate spending; privatize functions better left to the private sector; and leave areas best managed on a more local level to states and localities. Most important, Congress should reform the entitlement programs so that they become more affordable and benefit those with the greatest need.
The Federal Budget
- Washington spent nearly $3.5 trillion in 2014 while collecting nearly $3 trillion in revenues, resulting in a deficit of slightly less than half a trillion. In other words, 14 cents of every dollar that Washington spent in 2014 was borrowed.
- Over the past 20 years, federal spending grew 63 percent faster than inflation.
- Mandatory spending, including Social Security and means-tested entitlements, doubled after adjusting for inflation.
- Discretionary spending grew by 47 percent in real terms.
- Despite publicly held debt surging to three-fourths the size of the economy (as measured by GDP), net interest costs have fallen as interest rates have dropped to historic lows.
- Three major budget categories—major health care programs, Social Security, and interest on the debt—will account for 85 percent of nominal spending growth over the next decade. Entitlement reform is a must to curb the growth in spending.
Where Does All The Money Go?
- [In FY 2014] Forty-nine percent, or almost half of all spending, paid for Social Security and health care entitlements (primarily Medicare and Medicaid).
- In 2003, the entitlement share of the budget was 44 percent, compared with 49 percent today. Without reform of these massive and growing programs, Washington will have to borrow increasing amounts of money, piling debt onto younger generations and putting the nation on a dangerous economic course.
- Social Security is the largest federal spending program and has held this position since surpassing defense spending in 1993.
- Medicare is one of the largest and fastest-growing programs in the entire federal budget.
- In 1965, defense spending was 7.2 percent of GDP and mandatory spending on entitlement programs and net interest was 5.7 percent of GDP, one-third lower.
- In 2014, spending on defense is 3.5 percent of GDP, or less than half of what it was in 1965, and falling, while mandatory spending (including net interest) is reaching 14.3 percent of GDP and growing.
- Total annual spending will increase by $2.3 trillion in nominal terms, growing from $3.5 trillion in 2014 to $5.8 trillion in 2024.
- Social Security, Medicare, and Medicaid make up 77 percent, or more than three-fourths, of mandatory program spending in 2014 and have no budget limits.
- Discretionary spending, the part of the budget that Congress budgets each year, will increase by 29 percent over 10 years, but only if lawmakers enforce sequestration.
- Discretionary spending as a share of the budget will fall from two-thirds in 1964 to less than one-quarter in 2024, as entitlements grow uncontrolled.
- Mandatory spending will grow from one-quarter of the budget in 1965 to 63 percent by 2024. When net interest is added, this spending would consume three-fourths of the budget.
Debt Is Too High, and Growing
- Federal gross national debt consists of the publicly held debt (borrowed from credit markets) and intragovernmental debt, such as the Social Security Trust Fund.
- Publicly held debt exceeded $13 trillion in 2014, and together with nearly $5 trillion in intragovernmental debt, drove the national debt to nearly $18 trillion.
- In 2014, the national debt exceeds $145,000 per American household.
- In 2014, publicly held debt reached 74.4 percent of GDP. The historical average is about 38 percent.
- Baseline budget projections assume that Congress will allow a host of tax provisions to expire, an unlikely proposition. If Congress also ignores future sequestration cuts and continues the “doc fix” (reversing a scheduled payment cut to physicians who serve Medicare patients), publicly held debt would surge to 86 percent of GDP by 2024—the largest share since 1948.
Deficits and Interest on the Debt Grow
- Budget deficits occur any year that Congress spends more than it collects in taxes.
- In 2014, Congress borrowed 14 cents of every dollar it spent.
- The deficit is projected to grow from $486 billion in 2014 to $1.270 trillion by 2024, a 151 percent increase under the more realistic alternative fiscal scenario.
- Despite tax revenues returning to normal levels, the federal budget will have large deficits in each year because spending is projected to continue to grow.
- The amount the federal government pays on interest payments depends primarily on interest rates and the amount of debt held by the public. Other factors, such as inflation and the maturity structure of outstanding securities, also affect interest costs (for example, long-term bonds generally carry higher interest rates than do short-term bills).
- As the publicly held debt grows, net interest payments will increase dramatically, even assuming that rates rise only moderately.
- Every single penny that goes toward paying interest on the debt is a penny that is no longer available to fund federal government priorities, such as national defense.
The Major Entitlement Programs
- Federal spending on health care programs will more than double over the next decade, growing by $1 trillion—from $962 billion in 2014 to $1.9 trillion in 2024.
- Spending on Social Security, the largest federal program today, will surge by 77 percent, from $845 billion in 2014 to $1.5 trillion in 2024.
- Medicare is the largest health care program and its spending will surge by 72 percent, from $603 billion in 2014 to $1.04 trillion in 2024.
- Medicaid is the fastest-growing entitlement program and will grow by 87 percent over the decade, in no small part due to Obamacare’s Medicaid expansion. Medicaid needs reform, not expansion. This program provides health care to more than 60 million Americans and consumes a growing portion of state and federal budgets.
- Forty-four percent of the projected growth in major entitlement spending over the next decade is due to Obamacare’s subsidies and Medicaid expansion. Rising health care costs are projected to drive 13 percent of the increase; 43 percent of the spending growth in Social Security and the major health care programs will be due to population aging.
- In FY 2012, the total cost of federal and state means-tested welfare programs reached nearly $950 billion, an all-time high. Welfare spending has increased 16-fold since the federal government began the “War on Poverty” in the 1960s and is projected only to increase. This does not include spending on Social Security or Medicare.
- Today, there are roughly 80 federal means-tested welfare programs, including major programs like Medicaid, food stamps, the refundable Earned Income Tax Credit, public housing, Supplemental Security Income, and Temporary Assistance for Needy Families.
- Food stamps are one of the largest and fastest-growing means-tested welfare programs. Costs have doubled in inflation-adjusted terms since 2008. In 2012, more than 46 million Americans received food stamps every month.
- Total welfare spending should be rolled back to pre-recession (FY 2007) levels once employment rates recover, and, similar to the welfare reforms of 1996, work requirements for able-bodied adults should be inserted into welfare programs.
The Household Burden
- In 2014, the federal government spent more than $28,800 per household and still racked up a $4,000 deficit per household. In 2024, spending per household will be $47,300.
- The federal government borrowed 14 cents of every dollar it spent in 2014.
- The national debt in 2014 exceeds $145,000 per household.
- In 2014, a median-income family will earn about $52,000. If a typical family followed the federal government’s lead, it would spend nearly $60,400 and put $8,400 on a credit card. This family would have already racked up more than $308,800 in credit card debt—like a mortgage, only without the house.
Conclusions – When, How Does This End?
The national debt topped $18 trillion at the end of November, up almost 80% just since President Obama took office in early 2009. In FY2014, government spending was over $3.5 trillion for the sixth consecutive year. That equated to federal spending equal to almost $29,000 for each and every household in America. And that number is projected to almost double to over $47,000 in the next 10 years.
This out-of-control spending and debt buildup cannot continue indefinitely and will end very badly. Currently, the US enjoys near-record low interest rates, which has made it much easier to finance our deficits and national debt. But this, too, will not continue indefinitely. Unfortunately, politicians on both sides of the aisle seem to believe otherwise.
The question is, when will it come to an end? The answer is not clear. But the end, whenever it comes, will not be pretty! Think Greece.
Finally, due to space limitations, I have not reprinted nearly all of the latest Heritage Foundation report on out-of-control federal spending. There are many more charts and graphics in the full report. If you would like to read the full report, CLICK HERE.
Merry Christmas & Happy Holidays!!
I love this time of year! The kids are home from college and are out on beautiful Lake Travis where we live as I write this. Debi has the house ornately decorated for Christmas, as always. Fortunately, I got my Christmas shopping done a little early this year and anxiously await opening presents on Christmas morning. All of this means lots of cooking for yours truly, and I am always up to that challenge!
Whether you are celebrating Christmas, Hanukkah or some other occasion, I wish you Happy Holidays with family and friends!
Wishing you peace & joy at this special time of year,
Gary D. Halbert
Santa Comes Early at Pump as Gasoline at Lowest Level Since 2009
[Editor’s Note: I bought gas at $1.80 on Saturday in Fredericksburg, TX.]