Fiscal responsibility: focus on what really matters

If you weigh 200 pounds, are you overweight?

Maybe.

{mosads}If you’re five feet three inches tall and lack muscle, the answer is probably yes.

If you’re six feet three inches and lift weights, the answer is probably no.

Isolated numbers don’t always tell us what we need to know. That’s true of the numbers on the bathroom scale and it is true of the numbers we see on the federal budget.

All sorts of numbers, most of them quite large, get tossed around in Washington budget debates. What’s often missing is the context.

Is it a problem when Congress passes a trillion-dollar spending bill? Is it a problem that the nation owes over $14 trillion to its public bondholders? How does the average citizen know what these numbers mean?

The key to making sense of our nation’s fiscal problems is to look at ratios and trends, not just raw numbers. And the ratio that makes the most sense is how any particular number compares to the size of the economy, usually referred to as the gross domestic product (GDP).

This ratio is a better gauge of the sustainability of debt levels than the exact dollar amount of debt the country carries. 

In 1946, following World War II, the debt was $242 billion and 106 percent of GDP. By 1974, the debt had grown in dollar terms to $344 billion but had shrunk to 23 percent of GDP.

Consequently, we were in a better fiscal position in 1974 than in 1946 — even though the debt had increased in dollar terms.

The key concern about today’s debt is not its dollar total but that it has risen to 75 percent of GDP– the highest since 1951 — and is projected to keep growing. That pattern will lead to slower economic growth and lower living standards – and is ultimately unsustainable.

So the first thing to ask about a budget plan is whether it would eventually shrink the debt as a share of the economy.

The same lesson can be applied to individual budget categories such as defense and non-defense appropriations, Social Security, Medicare, Medicaid, interest on the debt and revenues.

All of these categories are projected to grow in dollars, but looking at dollars alone gives a distorted view.

For example, the money Congress appropriates annually to run all of the government departments and agencies, including defense, is projected to grow from $1.2 trillion this year to $1.4 trillion in 2026. 

As a share of the economy, however, these appropriations would decline from 6.5 percent of GDP to 5.2 percent. That would be far below the 8.7 percent average over the past 50 years. 

Another example is government revenue. Again, the projected total will grow in dollar terms — from $3.4 trillion this year to $5 trillion in 2026. However, projected revenues remain flat at 18.2 percent of GDP, above the 50-year average.

The story with Social Security, major health care programs and interest on the debt is far more troubling. These spending categories are projected to grow faster than the economy. Together, they will increase from 11.8 percent of GDP this year to 15.4 percent by 2026.

That increase would be the equivalent of adding $500 billion to this year’s budget.

What these ratios tell us is that if we truly want a sustainable budget, we’ll have to cut appropriations even more, increase taxes, or finally tackle the long-term cost increases in Social Security, Medicare, Medicaid and other health care programs. 

In truth, we’ll have to do a mix of these things and it will require bipartisan compromises. 

That will certainly be hard enough. But we should not confuse things by having arguments over numbers with no context.

Congressman Scott Rigell represents Virginia’s Second Congressional District. He is serving his third term in the United States House of Representatives and is a member of the House Appropriations Committee. Robert L. Bixby is the Executive Director of the Concord Coalition, a nationwide pro-fiscal responsibility organization.