Nick Smith, October 17, 2004

Next year, for the President and Congress, there are few more important issues than dealing with overspending and overpromising. Already, we pay more than $242 billion a year or 10.5% of total spending for interest on the debt. The federal government is now running the largest budget deficit in our history, which is estimated to be $574 billion for the fiscal year that ended on September 30. We will soon have to increase the $7.384 trillion statutory debt limit in order to accommodate this borrowing, which our children and grandchildren will ultimately have to finance.

The challenge facing Washington will be to demonstrate fiscal restraint. Between 1995 and 2000, Congress exercised a small amount of spending restraint in the face of what were record revenues. Spending growth over this period still exceeded inflation. In spite of robust economic growth and tax revenues, we still had deficit spending every year. (Those that brag about four years of surplus don’t count the billions from the Social Security used to cover up the deficit.)

With increased revenues rolling in, however, the tiny bit of fiscal discipline that Congress had in the late 1990s collapsed entirely. Between 2001 and 2005, government spending has increased by a whopping 29%. Fiscal years 2002, 2003, and 2004 were three of the five largest increases in discretionary spending over the last four decades. Total spending rose more than 8% in each of those years. While defense and homeland security needs contributed to that increase, the Republican Study Committee calculates that 55% of the new spending fell outside those areas.

The deficit and debt, unfortunately, are only the beginning of our financial problems. Dr. Tom Savings, who is a professor of economics at Texas A&M and a trustees for both Social Security and Medicare, calculated that the unfunded liabilities (the debt equivalent of our overpromising) for the two programs amount to a staggering $72 trillion. To put that in perspective, that is nearly ten times our entire national debt and more than 30 times our federal budget.

The unfunded liability means that taxes or borrowing or dramatic cuts in benefits will have to take place in the future. The percentage of income tax revenues necessary (in addition to payroll taxes) to keep the programs going is expected to rise rapidly. From 3.6% today, it will rise to 8.6% in 2010, to 28.6% in 2020, to 52.7% in 2030, and eventually to 101.6% of what the current system will bring in by 2070. It is evident that we won’t be able to transfer such large sums from general revenues without slashing all the other programs - from defense to education to health care to criminal justice - that the government funds. The seemingly simple solution of raising taxes would harm our competitive position and drive business and investment overseas.

With the bottom half of the adult population paying just 1% of income taxes and with many of those people calling for more government services, we are close to having a permanent majority for big government. That puts us on a slippery slope toward socialism and crushing debt. Controlling overpromising and overspending is a very important fight for the future of our country, and will likely have a more significant and longer-lasting impact on America than even the war on terrorism.

Congressman Nick Smith, a Republican, represents Michigan's 7th Congressional District, which includes Battle Creek and the counties of Branch, Eaton, Hillsdale, Jackson, Lenawee, Calhoun, and Washtenaw in south-central Michigan.