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The Big Long-Term Budget Squeeze. And What To Do About It

David Callahan

Two trends threaten to dominate government spending for decades to come -- and slowly eviscerate the public sector as a dynamic agent for solving problems. 

First, and most obviously, we'll be spending a boatload more money on old people as the Baby Boomers retire. Under President Obama's proposed budget, we'll spend an extra $1 trillion on Medicare and Social Security in 2024 compared to 2014. 
There's nothing wrong, per se, with spending more money on old people. As I've argued in the past, it was expensive to pay for the Boomers when they were kids -- what, with all those new schools, roads, tax-subsidized suburban homes, and public universities -- and it will be expensive to pay for them as seniors. That's just life, given the massive size of the Boomer generation. Anyway, that extra trillion bucks only adds up to a projected .6 percent of GDP, which strikes me as totally reasonable. 
But, absent major new revenue -- which we'll get to in a moment -- the new money going for the aged will put a squeeze on money for all the other things that government does, and Obama's budget lays that out in stark detail. Even as spending on entitlements for the aged goes up, spending on discretionary domestic functions goes down in real terms. Non-defense discretionary spending would fall by a full percentage point by 2024. In actual dollars, the Obama budget proposes domestic discretionary spending in 2024 that is just $46 billion greater than in 2014 -- compared to the trillion extra dollars going to Social Security and Medicare. 
Remember, we're talking about the proposed budget of a Democratic president. In practice, things could turn out a lot worse. 
The pot of money for domestic discretionary spending is so important because it can be used flexibly to tackle big and new challenges. If we decide in future years that government should do X to improve schools or Y to respond to global warming or Z to stop violence against women, the money will have to come from this discretionary pot. 
But as that line item is squeezed, launching new ventures by government will grow more difficult, since the focus will be on just protecting what government already does. 
The squeeze isn't just from more spending on seniors. It's also due to the second trend that threatens to end big government as we know it: Rising payments on the national debt. Under the Obama budget, interest payments will rise from $222 billion in 2014 to $812 billion in 2024. Here again, the comparison is stark: Just $46 billion extra on all domestic discretionary spending, and nearly $600 billion extra on interest. Wow. And if interest rates spike, that amount could be much higher. 
What does all this mean for progressive goals? A few things: First, the progressive project of active government will be dead and buried in a decade unless taxes go up substantially. If you want to see a plan for how to do this, check out the latest budget from the Congressional Progressive Caucus that I wrote about here recently. Second, the other great imperative to salvage activist government must be to control healthcare costs, since this is a big driver of higher government spending down the line, not just with Medicare but with Medicaid. Controlling costs means enacting a major second wave of health reform. Third, dwindling government dollars will place a greater premium on striking alliances with business and the nonprofit sector, with the latter in particular having greater resources as philanthropic giving continues to grow. 
So that's something of a game plan to deal with the budget squeeze: Raise taxes, further reform healthcare, and get better at leveraging government dollars. If you ask me, these priorities should be dominant themes in progressive strategy and policy work. Alas, they really aren't right now. Clearly, progressives need to spend more time looking at long-term budgets to see just what, exactly, is coming our way.