Straight talk on the Federal Budget

Generally, the Rio Grande Foundation focuses on state and local policy issues. Nonetheless, given New Mexico’s status as one of, if not the, most reliant states on federal spending within its borders, the perilous condition of the federal budget must be of concern to all New Mexicans.

Particularly in this political season, the tendency is for the media and politicians to ignore what then- chairman of the Joint Chiefs of Staff, Admiral Mike Mullen, called, “The biggest threat we have to our national security is our debt.” After all, no one running for office wants to be seen as taking government benefits away from people.

To make a dire, but complicated budget situation easier to understand, imagine a pie chart divided up into four approximately equal parts. They are: military, Social Security, Medicare/Medicaid, and everything else. About 25 percent of that “everything else” is not spent on actual programs; rather it is spent on interest payments on the national debt.

Unfortunately, the amount of spending done on these programs far exceeds tax revenues collected. This year, we are overspending by $1.3 trillion or so or more than 36 percent of the federal budget each year. That $1.3 trillion must be borrowed, thus adding to the burden on future generations). Total federal spending has doubled since the end of the Clinton Administration (from $1.8 trillion back in 2000 to $3.7 trillion this year).

Tax rates can be raised and lowered, but they cannot solve the problem. For starters, if the federal government simply confiscated all of the wealth of anyone in the country who earns $250,000 or more annually, we’d have about enough to bridge the deficit for one year. But, taking that wealth is a one-time operation. What do you do beyond that?

The reality is that spending must be the focal point of any serious discussion about New Mexico’s fiscal future. And, while eliminating or dramatically scaling back the Departments of Education, Energy, Commerce, Housing, and others is laudable, getting rid of them comes nowhere close to closing the gap between what the government takes in and what it spends on an annual basis.

If America is going to get back on track, we must go after the proverbial “big fish” in the federal budget: Social Security, Medicare, Medicaid, and the military.

The thing about New Mexico in this discussion is that it is in line to be disproportionately impacted. We have major federal installations under the Departments of Energy and Defense. We also have among the poorest populations in the nation which makes us heavily-reliant on Medicaid (New Mexico currently receives a 3-1 match from Washington for each dollar it spends on Medicaid).

Politically-speaking, Rep. Paul Ryan is among the only serious voices in Washington when it comes to reducing out-of-control entitlement spending. He does this by giving states more control over and responsibility for Medicaid spending (no longer can the program be expanded to take advantage of a generous match) and giving seniors greater control over decisions regarding their Medicare spending.

Ryan’s plan is not perfect, but it is the only serious one before Congress. Ryan makes what I believe are a few mistakes. He fails to make any reforms to a broken Social Security system that will continue to shortchange younger workers, he fails to address military spending (combined, that is 50 percent of the budget off the table), and he unnecessarily intermingles the tax reform issue with spending and entitlement reform issues, thus opening himself to attacks from the left.

But, as they say, “in the land of the blind, the one-eyed man is king.” And, Washington, DC is certainly blind when it comes to tackling crucial budgetary issues. With entitlements alone set to consume all federal tax revenues by 2050, the time for serious action is now.

Despite our reliance on the federal government, New Mexicans would be wise to accept an ounce of prevention now because the “cure” for fiscal incontinence will not be pretty.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.