Tuesday, January 8, 2013

We Don’t have a Spending Problem, we have a Military Spending Problem

Have you read Brad Plumer’s terrific, chart-heavy primer on America’s insane defense budget? If not, I’ll wait while you do.

Done? Good. The numbers there should shock you. In particular, this one: “Since 2001, the base defense budget has soared from $287 billion to $530 billion — and that’s before accounting for the primary costs of the Iraq and Afghanistan wars.” Or, if you prefer to see it in graph form:
defense spending hills
That’s big money. More than we spent on Medicare, in fact. But it’s big money that doesn’t often get recognized in our budget conversation.

The forward of Rep. Paul Ryan’s 2011 budget — which was later adopted by both House and Senate Republicans — offers a concise version of the Republican take on our deficits. “The U.S. government is not running sustained deficits because Americans are taxed too little,” the authors write. “The government is running deficits because it spends too much.”
Among the most serious attempts to prove this point came from Charles Blahous writing at the conservative think tank E21. Blahous set out to show the exact factors that took us from surpluses in 2001 to deficits in 2011. In particular, he wanted to show that tax cuts were not at fault.
pie chart blahous
The Bush tax cuts, he finds, were responsible for about a quarter of the deterioration in the budget outlook, making them the single most expensive set of policies enacted. But all spending, together, was responsible for about half of the turn towards deficits. Finally, the flagging economy accounts for another quarter. “Had the tax relief never been enacted but everything else happened as it has, we still would face enormous deficits today,” Blahous concludes.

So where did all the new spending come from? Well, largely from the post-9/11 defense build-up. “One major factor that worsened the fiscal outlook was a large increase in federal discretionary spending. Much of this, of course, happened after the United States was attacked on September 11, 2001. The U.S. thereafter conducted major military operations in Afghanistan and Iraq, and also increased expenditures on homeland security.”

This isn’t the easiest graph to read, but it tells the basic tale. The blue line is what the Congressional Budget Office thought would happen. The green line is what happened when you take into account the economic turbulence. The purple line shows the budget after discretionary spending, which was driven by increased war and security costs. Then the light blue adds in mandatory spending (including Medicare Part D), the orange adds in TARP, and the periwinkle — yeah, I know my colors — adds in the stimulus. Compared to the discretionary spending, they barely move the needle:
Blahous graph

As a broad point, I don’t think this proves that we have a spending problem rather than a taxing problem. It shows we have deficits driven by a range of factors, including tax cuts, war spending, the recessions, Medicare Part D, the stimulus, and more. It implies the solution should include measures to boost taxes, cut spending, and increase growth,. But if you want to argue that our current deficits are the result of overspending, then the military budget and the wars need to be the center of your analysis. Yet the Republican budget doesn’t envision big defense cuts and the 2012 Republican nominee for president sought large increases in defense spending.

That accounts for the 2001 to 2011 period. Going forward, of course, we have a health care problem more than we have a taxing or spending problem. But even that may be abating.