RALEIGH – For years, fiscal conservatives in Washington and Raleigh warned lawmakers of both parties that their short-sightedness would lead inexorably to a future fiscal crisis. But the appetite for government spending is much like the appetite for junk food. Eating it feels good today, while the downsides are off in the hard-to-imagine future.
At the national level, fiscal conservatives were subjected to ridicule or demagoguery when they argued that Social Security, Medicare, Medicaid, and other entitlements should have been reformed back in the 1990s and 2000s, when there was still time to accumulate real assets to finance these promises – not stacks of checks written by Uncle Sam to himself – and to create incentives for Americans to save for their own retirement and health care needs.
At the state level, fiscal conservatives were subjected to ridicule or demagoguery when they argued that double-digit revenue increases in boom years ought not to be spent on double-digit spending increases, but instead used to reduce state indebtedness, accumulate rainy-day funds, and reduce economically ruinous marginal tax rates.
Few politicians listened. They chose to deny fiscal reality. Indulging their fiscal fantasies was more congenial to their political futures – or so they thought.
Now, the federal government is running budget deficits approaching 10 percent of gross domestic product. Federal revenues are below the historical average, not surprising during a deep recession and weak recovery. But federal expenditures are even higher above the historical average and aren’t going to drop back towards 20 percent of GDP or below without very difficult choices and wrenching adjustments. Here in North Carolina, a resort to temporary taxes, federal bailouts, and fiscal gimmicks over the past two years set the stage for an operating deficit in the coming year of about 15 percent.
Among the only bits of good news to come from all this is that the political class seems finally to have exited their fantasy world. Longtime lawmakers are no longer denying the reality of a large structural gap between the spending they have promised and the revenues that can be expected from current tax rates. There’s also a large class of incoming freshman, in Congress and the General Assembly, who are promising fiscal discipline.
At the very least, then, there ought to be working majorities in Washington and Raleigh to forestall scheduled increases in government spending in the coming years. Now that they aren’t denying the existence of the hole they’ve dug, they might start by climbing out of it and not digging it deeper.
Repealing ObamaCare is the logical place to start. Not only is it a health–policy disaster, taking the country in precisely the wrong direction when it comes to incentives and patient power, but the legislation will also increase our governments’ fiscal problems – except in the fevered imaginations of a few left-wingers who believe their own propaganda.
Triangle Business Journal reported on one of the reasons why last month. The North Carolina Department of Health and Human Services projects that ObamaCare will increase the state’s Medicaid rolls by more than half a million by 2014. While the federal government will temporarily pick up most of the cost of newly eligible enrollees, nearly half of the caseload increase is expected to consist of individuals already eligible for Medicaid but not enrolled.
North Carolina will not receive special federal funds to cover those costs. They’ll be in the standard Medicaid formula, thus adding somewhere in the neighborhood of $300 million a year to the state’s General Fund.
Of course, even the portion of the Medicaid expansion that will be temporarily “paid for” by Washington won’t really be paid for by Washington. All the money will be taken from North Carolinians, either directly through present taxes and future taxes or indirectly through monetary inflation.
We can’t afford it. We even can’t afford today’s levels of spending. Denial is no longer an option. Repealing this monstrosity is.
Hood is president of the John Locke Foundation.