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Federal Spending

Fri, Apr 5th, 2013
Posted in All Commentary

By Karen Reisner

The deadline for filing 2012 tax returns will soon be here. When filing your return do you question where your federal tax dollars go? According to the Office of Management and Budget in 2011 these dollars were spent as follows: 20 percent on Defense and International Security Assistance, 20 percent on Social Security, 21 percent on Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), 13 percent on safety net programs, 6 percent on interest on the national debt, 7 percent on federal benefits for federal retirees and veterans, 3 percent on transportation and infrastructure, 2 percent on education, 2 percent on science and medical research, 1 percent on international aid including humanitarian aid, and 4 percent on ‘other’.


Defense eats up a high proportion of revenue. The United States spends more on defense than the next seventeen countries combined. The ultimate cost of war is the loss of lives and the devastating effect on the lives of those close to those who died or were permanently injured during their service. Beyond that, there is the fiscal cost incurred by the military before and during time of war and for decades there after. Expenses continue for the lifetimes of these veterans. They have certainly earned medical and disability services. The Los Angeles Times recently reported that the real cost of the Iraq and Afghanistan wars when decades of medical and disability expenses are included will be from $4 trillion to $6 trillion. ‘Boots on the ground’ war is especially costly both in lives and in dollars for generations.

Federal benefits for federal retirees, federal elected officials, and military officers should be looked at carefully to keep them fair, but not unrealistic. These too are often an obligation for decades.


The total Social Security dollars expended will continue to grow each year due to demographics and the fact that retirees are living longer. The retirement age could be raised and should be. More money could and should be collected for Social Security by raising the cap on employment or payroll taxes which is now at $113,700. One argument against raising the retirement age is the erosion of the ability of older workers to continue to do physically demanding jobs. Some people in physically demanding jobs may need to find less physically demanding employment or file for disability, in the event the retirement age is raised. These changes would be unpopular, but are needed to assure the viability of the program long term.

Medicare expenses will explode in years to come if there are not structural adjustments to the program as more baby boomers utilize the benefits. Keeping all the promises made by the federal government over the past many decades is not realistic. Structural changes need to be made to address the long term inevitable costs or the program will collapse. More revenue alone is not a rational solution. Providers need to rein in waste, excess testing, and unnecessary procedures and treatment regimens, in favor of providing efficient treatments for the best realistic outcome.

According to PBS in 2010 the United States spent $8,233 per year per person on health care. This is two and one half times what the average of other developed countries spend ($3,268). We spend nearly 18 percent of the Gross National Product (GDP) on health care.

Higher costs do not always translate into better outcomes. The United States has less physicians and hospital beds per person. We live an average of one year less than the average life expectancy of other developed countries.

The bright spots where the United States leads are cancer and health care research and the survival rate for cancer patients.

Why do we pay more for less in most cases? More unnecessary testing and treatments are prescribed. This may be at least in part due to the fear of litigation. Tests and treatment regimens cost more in the United States than in other developed countries. Other countries use a fee schedule. In our country the cost of a given test can vary wildly just from one provider to another in the same city. Administration costs are far higher in the United States.

Hospital services cost more while they may include less. Medical and surgical services cost about 85 percent more. We don’t have better quality of care, just more expensive care.

As a society we need to do better in preventing health issues which come from smoking, alcohol use, and obesity. Obesity rates are highest in the United States. We are on course for even worse obesity in the future as over a third of children in the United States are obese. Only Greece has a higher rate of obese children.


Interest will surely increase as the deficit continues to balloon. Interest rates are low now and will likely increase. The only way to bring the growth of interest down is to reduce the debt. Yearly deficits are not going to be easy to reduce due to the defense budget, the obligations that we will have for decades to come for veterans of Iraq and Afghanistan, and the certain growth of the number of retirees eligible for Medicare and Social Security.

Some new revenue will help, but in order to slow and turn around the growth of the country’s debt, structural reforms are necessary. The longer we wait, the more extreme the reforms will need to be. Entitlements need to be adjusted appropriately for the changing demographics.

Transportation, Infrastructure, Education, and Science and Medical Research

Spending in these areas is necessary for a prosperous future. Together, they only make up 7 percent of the total budget. If anything, we should spend more in these areas. The economy needs to grow at a healthy rate to bring in revenue. Investment in these areas will help the economy grow without adding to future built-in costs.


Both the House and Senate recently managed to pass a budget but the budgets are light-years apart. The House or “Ryan” budget has no added revenue and would not be acceptable to the Senate or the President as it stands. It makes reductions in future deficits by making “major” changes to entitlement programs and cuts in education. All spending reductions and no new revenue will likely slow the economy. The Senate budget, passed with no Republican votes, claims to protect the economic recovery, work on the deficit and debt, and keep the promises that have been made. Keeping all the promises made over the decades without some adjustments is not realistic. The Senate budget would be totally unacceptable to the House. It raises nearly $1 trillion in more revenue and has about the same dollar amount of reductions. It is highly unlikely that negotiation in a conference committee will manage to produce a budget that can go forward.

Much of the budget is consumed by promised obligations made over the last many decades. These obligations were set into law when life expectancies were much shorter and when medical advances and associated costs were much less. The factors and numbers have changed but Congress has been unable to govern and make the structural changes to keep these long term programs viable. Social Security and Medicare are important services that need to be maintained and kept viable for future generations by making them workable with today’s and near future demographics and life expectancies.

Both bodies did recently pass a continuing resolution which was signed by President Obama, which means they will just continue to operate using stopgap spending measures as has been done over and over again. Or, in other words, Congress will just continue digging the hole deeper and deeper.

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