The chart below (prepared by the Congressional Budget Office) tells an important part of the story. Since 1965—the year Medicare and Medicaid healthcare programs were signed into law—federal spending has averaged 20.1 percent of America's total economic output. During the same five-decade time frame, Uncle Sam's revenue has averaged 17.4 percent of GDP per year. But across that span, Washington produced a balanced budget in only five years. In 1969, a booming economy and LBJ's Vietnam surtax filled the Treasury's coffers to 19 percent of GDP. Uncle Sam was also in the black from fiscal years 1998 through 2001, as the Clinton expansion and the dotcom boom (with its large capital gains paydays) brought in a tax revenue haul that reached 20 percent in 2000.
(Tax cuts and recessions produced the opposite effect. Ronald Reagan's massive 1981 tax cuts were followed by the deep recession of 1982, a double-whammy from which tax revenue did not recover until 1985. George W. Bush's tax cuts, combined with a brief downswing in 2001 and the later financial meltdown produced oceans of red ink, and by FY 2009, the lowest percentage tax haul since 1950.)
The real core of the issue comes down to a question of what is the appropriate role of government.
I have argued for a long time that the answer to that question is found in the distinction established by the 19th century philosopher John Stuart Mill. He was the first to take what was, until him, the subject of political economy and distinguish between its two components. Economics, he maintained, was concerned with the production of wealth while politics (or government) was concerned with the distribution of wealth.
At its supposed center, the Tea Party – and by extension the contemporary conservative movement – would essentially gut the distributive role of government. It would shrink the raison d’etre of government to providing for the common defense and maintaining law and order. Virtually all other “public goods” from education to infrastructure to public welfare would be privatized. In essence, they would fall into the domain defined by Mill as Economics.
Now Americans could shrink the size of government to what they've actually been paying for, if they actually wanted to shrink the size of government. But when pressed to explain where they would chop the budget, poll after poll shows pretty much the same thing: nowhere. In 2008, not even a quarter of conservatives surveyed by the American National Election Study would cut any of the 12 programs listed. A 2010 CBS/New York Times poll of tea party members found that 92 percent said they wanted smaller government and fewer services, yet 62 percent said current Social Security and Medicare expenditures were worth it. That same year, an Economist/YouGov poll found that respondents preferred cutting spending to raising taxes to reduce the deficit by a margin of 62 to 5 percent. But as Ezra Klein noted at the time: “The only program that more than a third of the public wants to see cut is foreign aid. Bummer, then, that it accounts for less than a single percent of the budget.”
A 2013 survey by the Pew Research Center (below right) gave an even clearer view of the degree to which Americans want the scope of the federal government preserved or even expanded. Again, foreign aid ("Aid to the World's Needy") was the only area of federal spending where the percentage wanting to decrease funding (48 percent) even approached those wanting to maintain (28 percent) or expand it (21 percent). Huge majorities wanted to keep or increase current investments in education, Social Security, Medicare and infrastructure. The survey said, simply, that all of the biggest ticket items in the budget are off-limits. (Interestingly, the military is ranked lower as a spending priority.)
It is often said of that the United States government is an insurance company with an army. As the CBPP analysis of the $3.5 trillion FY 2014 budget (above left) shows, defense, Social Security, health care (of which Medicare was $511 billion) and interest on the national debt accounted for 73 percent of federal spending. Total non-defense discretionary spending, which among other things includes education, transportation, research, and infrastructure is roughly $1 trillion a year. And thanks to the 2011 Budget Control Act (sequestration) and subsequent budget agreements, those very areas so essential to American global competitiveness in the 21st century now represent their smallest share of GDP in over 50 years.
But while President Obama and Congressional progressives want to make the needed investments to secure Americans' standard of living in the future, House and Senate Republicans are heading down a path to a much different end. Under the emerging GOP budget plan, the United States would be an army with a not-very-good insurance company.