The Stubborn Welfare State

Spend a moment studying the small charts below. They illuminate why another of our annual budget battles--begun last week, when President Bush submitted his 2008 proposal--seems so fruitless and (yes) repetitious. Every year we hear complaints about accounting gimmicks and unrealistic assumptions. There's a ferocious cross-fire of charges and countercharges. Hardly anything ever gets resolved. Budgets almost always remain in deficit (41 out of 47 years since 1960).

The charts show the rise of the American welfare state. In 1956, defense dominated the budget; the cold-war buildup was in full swing. The welfare state, which is what "payments to individuals" signifies, was modest. Now everything's reversed. Despite the war in Iraq, defense spending is only a fifth of the budget; so-called entitlement payments to individuals are 60 percent--and rising. In fiscal 2006, the federal government spent almost $2.7 trillion. Social Security ($544 billion), Medicare ($374 billion) and Medicaid ($181 billion) dominated. There was $199 billion more for payments to the poor, including the earned income-tax credit and food stamps, among others.

Almost no one wants to slash these programs. They have huge constituencies; they're popular. Paradoxically, their invulnerability and size also protect much of the rest of the budget. Look again at the charts. After payments to individuals, defense spending and interest on the debt (which must be paid), only about a ninth of the budget remains. Many of these remaining programs are widely supported. Does anyone really want to end the National Institutes of Health at $28 billion? Or how about the $41 billion we spend to support federal courts, prosecutors and police (the FBI, DEA, border patrol)?

Of course, some programs are wasteful, ineffective or outmoded. My perennial favorite is Amtrak, which serves a tiny number of passengers, is concentrated in the Northeast and costs $1.3 billion annually. But politically, ending programs like this is hardly worth the trouble. The bad publicity of antagonizing aggrieved advocates--here, railroad buffs and maybe environmentalists--is too high for the small budget savings. In a nearly $3 trillion budget, even 10 Amtraks are a footnote.

The welfare state has made budgeting an exercise in futility. Both liberals and conservatives, in their own ways, peddle phony solutions. Cut waste, say conservatives. Well, network-TV reports of $20 million federal programs that don't work may seem--and be--scandalous, but like Amtrak, they're usually mere blips on the total budget. For its 2008 budget, the Bush administration brags it would end or sharply reduce 141 programs. But most are microscopic; total savings would be $12 billion, or 0.4 percent of spending. Worse, Congress has previously rejected some of these cuts.

Liberals have their own cures. Cut defense, some say. OK. In 2006, military spending (including the war in Iraq) totaled $520 billion, slightly less than Social Security. If it had been halved, the savings would have just covered the deficit ($248 billion). Little would be left for new programs. Raise taxes on the richest 1 percent, say some. OK. The richest 1 percent pay about a quarter of all federal taxes. In 2006, that was about $600 billion. To cover the deficit would require about a 40 percent tax increase. Needless to say, neither proposal is politically plausible.

Annual budget debates are sterile--long on rhetoric, short on action--because each side blames the other for a situation that neither chooses to change. To cut spending significantly, conservatives would have to go after popular welfare programs, including Social Security and Medicare. To raise taxes significantly, liberals would have to go after the upper-middle class, a constituency they covet (two thirds of all federal taxes come from the richest fifth). Deficits persist, because neither side risks its popularity, and indeed, both sides nurture it with new spending programs and tax breaks.

It might help if Americans called welfare programs--current benefits for select populations, paid for by current taxes--by their proper name, rather than by the soothing (and misleading) labels of "entitlements" and "social insurance." That way, we might ask ourselves who deserves welfare and why. We could consider all of federal spending and not just small bits of it. But most Americans don't want to admit that they're current or prospective welfare recipients. They prefer to think that they automatically deserve whatever they've been promised simply because they've been promised. They do not want to pose the basic questions, and their political leaders mirror that reluctance. This makes the welfare state immovable and the budget situation intractable.