Contact FreedomWorks

111 K Street NE
Suite 600
Washington, DC 20002

  • Toll Free 1.888.564.6273
  • Local 202.783.3870
LISTEN NOWThe Freedom Files Podcast Episode 42: Jim LamonListen Here

Op-ed Placement

FreedomWorks Entitlement Reform Series Part Two: Cutting Discretionary Spending is Not Enough to Prevent Debt Crisis

BY Jason Pye
04/29/2019
Originally Published in The Hill by Jason Pye on 4/27/19.

As the House considers the fifth discretionary spending limits bill, the Investing for the People Act, since the Budget Control Act of 2011, it is worth taking a serious look at what that debate means in the scheme of federal spending. It matters but is far from the true root of our fiscal insanity. Nondefense discretionary spending is projected to represent about 15 percent of federal spending in 2019, or about $669 billion out of the expected budget of over $4.4 trillion, according to the Congressional Budget Office. Congress could eliminate all nondefense discretionary spending and still run a large budget deficit of more than $300 billion.

Some lawmakers focus on reducing nondefense discretionary spending, suggesting the programs classified as such are the source of budget deficits. But nondefense spending relative to gross domestic product has declined since 1980 when it peaked at 5 percent of the economy. The 2009 stimulus bill, the American Recovery and Reinvestment Act, fueled a brief increase in nondefense discretionary spending, but that has since declined and is expected to stay on a slow downward trajectory.

Defense discretionary spending has also declined as a portion of the economy. In 2019, the government is projected to spend $693 billion on defense, or about 3 percent of gross domestic product. By 2028, defense and nondefense discretionary spending will be close to 6 percent of the economy. However, federal spending will continue to rise, consuming more of the economy. This is because mandatory spending, including entitlement programs like Medicare and Social Security, and interest on publicly held debt will increase above historical averages.

In 2019, defense and nondefense discretionary spending is projected to represent nearly 31 percent of federal spending. This is the spending that Congress appropriates on an annual basis for the government to spend. Mandatory spending and interest on the national debt run on autopilot without debate. Mandatory spending and interest on the debt collectively represent nearly 70 percent of annual federal outlays. In 2028, mandatory spending and interest on the debt is projected to represent 77 percent of outlays, while discretionary spending declines to less than 23 percent.

Between 1980 and 2017, federal spending averaged nearly 21 percent of the economy. There were four consecutive years, 2009 through 2012, during which federal spending exceeded 22 percent of gross domestic product, reaching as high as 24 percent in 2009. This was the effect of higher stimulus spending and health care spending as a result of the Affordable Care Act. The government is expected to spend 21 percent of gross domestic product in 2019, and the share of national debt held by the public is expected to be 79 percent. By 2028, federal spending may reach nearly 24 percent, and publicly held debt will reach 96 percent.

The estimates that the Congressional Budget Office provided are subject to change, and the assumption is that if these projections do change, it will be for the worse. The budget deal passed by Congress and signed by President Trump in early 2018 busted the previously established spending limits by $296 billion over two fiscal years. We are now seeing those spending limits serve as the new baseline for federal spending, meaning that discretionary spending could grow above projected rates. If the Investing for the People Act, which would be far more aptly called the Bankrupting the People Act, becomes law, this will be proven accurate.

The level of debt the United States may see absent legislative action is concerning. While estimates vary, economists agree that high levels of debt create what is called a debt drag, which slows economic growth. A 2010 paper published by the World Bank argued that the tipping point threshold for debt to gross domestic product is 77 percent. The authors explained that debt above this threshold costs real economic growth.

The warning lights are flashing red as the fiscal future of the United States is perilous and the prosperity of the next generation is at risk. Some may scoff at the notion of a sovereign debt crisis happening to the strongest nation in the world, but it can unless Congress rises to the challenge to address the entitlement programs like Social Security and Medicare.