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The

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2020: A Budget
Odyssey

"The natural progress of things is for
liberty to yield and government to gain ground."
-Thomas Jefferson

Imagine the headlines for January 24, 2020:

PRESIDENT PROPOSES $6 TRILLION BUDGET,
RECORD TAX HIKE

INTEREST RATES SURGE, DOW PLUMMETS

Washington, D.C.President released his fiscal year 2021 budget blueprint today, a plan which calls for the first $6 trillion budget in U.S. history and a $600 billion tax hike-the largest tax increase in American history. At least $400 billion of these funds

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2020: A Budget Odyssey

bring to an end the past three decades of fiscal malpractice in Washing

ton."

"No one likes to pay more taxes, and I don't like having to ask them of you, but every American must participate in this crusade against red ink and runaway spending," the President pleaded. "Without these changes, we face a future of $1 trillion deficits for as far as the eye can see." But the White House conceded that even with these new taxes, the national debt will exceed $16 trillion in 2020 and the deficit will be reduced only to $640 billion.

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The President devoted much of his speech to the bail-out of Social Security. "For the past twenty-five years there has been a bipartisan conspiracy in Washington to walk off with retirement money from the federal vault; the day of reckoning is here," he announced. Budget documents reveal that the deficit in the trust fund is expected to climb to a record $400 billion next yearthe equivalent of more than $150,000 per retiree. Benefit levels have already been cut by 14 percent over the past three years and the President calls for raising the payroll tax another two percentage points to 24 percent next year.

The President's plan is not all pain and suffering, however. The White House proposes a $450 billion spending increase for what he calls "neglected priorities"-a category which includes education, unemployment insurance, infrastruc

2020: A Budget Odyssey

ture, and home building. deal with the evils of

But a spokesman for the Children's Defense Fund protested that we will never succeed in alleviating poverty, poverty, homelessness, and illiteracy if the government is willing to spend only "nickels and dimes."

An ABC/New York Times poll taken after the speech indicated that only 18 percent of the public believes the plan will bring down the budget deficit. More than six in ten Americans said they think the deficit will get worse, not better if the plan is adopted. "The public has learned that these budget plans have a perfect record of failure, said a National Taxpayer's Union press

release.

A record 91 percent of the public said they now support a constitutional amendment to balance the budget, an idea the President denounced a s "fool's gold." What we need from Congress "is courage,

not the Constitution, to

big deficits," he insisted. "Trying to bring the deficit down too quickly would be extremely dangerous and economically muddleheaded, " added the Chairman of the Council of Economic Advisers.

Financial markets accelerated their yearlong tumble and interest rates soared after the President's message. The thirty-year T-bill rate hit a new high of 14.25 percent, and home mortgage interest rates are now over 20 percent. "Despite all the fancy slogans, Washington simply has depleted its last ounce of credibility on the budget deficit," complained the chief economist at Citibank. "The real tragedy is that Congress refused to take action more than twenty years ago to head off this financial train wreck," he added.

In a related story, soon after the President's announcement, a group of more than 8,000

2020: A Budget Odyssey

angry a onstrators, almost all under the age of 30, gathered in front of the White House to protest the proposed hike in the Social Security tax. At one point the protesters began chanting: "Hey, hey, we won't pay, " as they burned their Social Security cards. When several hundred senior citizens arrived for a

counter-demonstration
organized by the Ameri-
can Association of
Retired Persons, the
Capitol police had to be
called in
in to maintain
order. "Welcome to the
age of generational war-
fare," said one young
woman from Cleveland who
helped organize the
march on the White
House.

Is this news story from the year 2020 an improbable doomsday scenario? Is our government really headed for such a tragic financial train wreck? Are the young and the old going to be pitted against each other in a political battle royal?

Unfortunately, the answer is that something very much like this could happen early in the next century, if Congress continues to spend and tax and borrow and regulate and mandate over the next thirty years at the same pace that it has over the past forty. That is, if we simply stay on the course we are on, then this doomsday scenario could become a likely scenario.

So before we discuss how to avoid this gloomy outlook in the next century, let's first investigate the full implications of the "stay the course" fiscal option. This should underscore why it is essential that, as a nation, we DO change course.

The Past as Prologue

Just how much more government can we expect in coming decades?

One useful guide for answering this question is to examine the trends in government spending in recent decades. Federal spending consumed just 16 percent of GDP in 1950, but 24 percent in 1994. In real dollars this was a six-fold increase in the federal budget since 1950; a doubling since 1970; and a 50 percent rise since 1980.

2020: A Budget Odyssey

Let's briefly review where all this money has been spent. Table 1-1 shows the patterns of budget growth since 1950. It reveals several important trends:

An era of near-universal budget expansion-Over the past four decades almost every major component of the federal budget has increased in real dollars. The two exceptions to the rule are foreign assistance programs and veterans programs. (Veterans benefits were high in the immediate aftermath of World War II but have since declined slightly.)

Table 1-1

Growth in Real Federal Expenditures, 1950-1994 (Billions of $1990)

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