We Need a Spending Overhaul ASAP!

PUBLISHED OCTOBER 2024

We entered a new federal fiscal year this month. By one accounting, our deficit for fiscal year 2024 reached $2.3 trillion! Back when Ronald Reagan was president and budget deficits were rising, he rolled out the “New Federalism” program to shift more responsibilities from the federal government to state and local governments. The public was receptive to his ideas, the notion being that states and localities know best what the critical needs are for their citizens. Reagan used Congress and executive orders to implement many of his federalism reforms, although some of his proposals failed after being confronted by special interest groups.

Reagan’s ideas were not new. At the time his ideas captured and stimulated growing public opposition to big government, big business, and big labor, prescribing a solution that appeared consistent with the ideas of our Constitution. Returning responsibility for domestic policies to state governments, he suggested, would give the states greater discretion in crafting and implementing those policies, require less federal monetary assistance, and reduce the need for federal regulations and oversight. 

Non-defense spending by the federal government topped $3.8 trillion for 2023, primarily funding Social Security, Medicare, Medicaid, federal pensions, health care, education, welfare, and other non-defense spending. In fiscal 2024, total federal spending is budgeted to be $6.941 trillion, an astonishing 13.3 percent more than the total outlays of $6.135 trillion in fiscal 2023.

Our federal government is facing several ticking time bombs that require the full attention of Congress to avoid major financial calamities down the road. First and maybe worst, medical spending is projected to grow dramatically. The number of people enrolled in Medicare is expected to have increased from 47 million in 2010 to 80 million by 2030. The same demographic trends that affect Social Security also affect Medicare, but rapidly rising medical costs appear to be the fastest-growing cause of projected spending increases.

We already have a model for what happens in nationalizing health care: the Veterans Administration, a subject of heavy criticism due to inadequate health-care services, including long wait times and insufficient mental care, excessive spending, contradictory policies, a massive backlog of benefit claims, lack of protection for its staff and issues related to veterans’ access to private health-care services. Universal health care run by our federal government might look like Canada’s long wait times on steroids.

The CBO says future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health-care programs—will be the most important determinant of long-term spending trends. Changing those programs to reduce growth will be difficult, in part because of the complexity of health policy choices. But it is ultimately the nation’s central long-term challenge in setting federal fiscal policy. For 2024, federal health care accounts for 6.3 percent of GDP, that will  soar to 19.7 percent by 2030.

Social Security spending will also increase sharply over the next decades, largely due to the retirement of the Baby Boom generation, born 1946 to 1964. The number of program recipients is expected to have increased from 44 million in 2010 to 73 million in 2030. Program spending is projected to rise from 4.8 percent of GDP in 2010 to 5.9 percent of GDP by 2030. The solution to fixing a Social Security system—whose Trust Fund is projected to go bankrupt around 2035—is likely to be an increase in payroll taxes and a reduction in the cost-of-living increases. However, this sacred cow is apparently considered untouchable. 

In 2024, interest on the federal debt is projected to be $892 billion, almost a third higher than what it was in 2023, accounting for 3.1 percent of GDP. For 2024, the federal debt-to-GDP ratio is projected to be 121 percent, meaning total public debt is more than 20 percent higher than the entire U.S. economy. By 2050, the CBO states that this number will rise to at least 166 percent of GDP. 

It is past time to end the bureaucratic jungle of endless paperwork, red tape, one-hour hold times, waste, and fraud. Like him or not, a government efficiency czar like Elon Musk has proposed top-down reforms in the form of audit and accountability to identify areas of waste and inefficiency that hinder operations and economic growth, slashing unnecessary spending, and applying principles from the private sector, such as stream-lining processes by implementing the most advanced technologies available. 

The goal should be to make our federal government more responsive, cost-effective, transparent, and leaner while doing more for citizens with far fewer federal workers (by instituting extreme productivity gains through the implementation of technology and innovation—the stuff at which America’s private sector is the best at in the world.

We balanced the budget and—amazingly enough—generated budget surpluses from 1998 to 2001. Somehow, we could do so again, to secure our future, our kids’ future, our grandkids’ future, as well as generations thereafter. Hopefully, during this election season, there is widespread consensus among the vast majority of Americans that something must be done to overhaul the federal government—and the sooner the better!