What the Washington argument is really all about

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Column by Jim Flynn

Has the long-running political controversy in Washington really been about debt and deficits, spending and taxes? Yes and no. The real conflict is about our two welfare states – the visible and the hidden.

The visible welfare state had two periods of growth. The first was the great depression (1929-1941). During the presidency of Franklin Roosevelt, the Social Security Act was adopted.

The second period of visible welfare growth was the great society (1964–1969). Persuasive president Lyndon Johnson charmed and strong-armed Congress into passing Medicare, Medicaid, the War on Poverty, and a significant number of social services and training programs.

Visible social welfare programs have always been met with significant controversy leading up to adoption. Once adopted, visible welfare programs acquire legions of dedicated immediate and future beneficiaries, whom politicians dare not antagonize. In Washington talk politicians are warned not to touch the third rail.

By contrast, hidden welfare benefits began long before enactment of the income tax amendment and the Revenue Act of 1913. That was the year in which the Treasury Department created Form 1040 and millions of Americans began their lifelong dislike for the Internal Revenue Service.

Ever since 1913, Congress has been creating goodies in the tax code and hundreds of other federal laws - money paid out, such as the earned income credit, and money which will never be collected - exemptions, incentives, subsidies, and other targeted benefits.

Hidden welfare benefits affect housing, transportation, health care, agriculture, safety, finance, defense, education, banking, and small businesses. A few clever Americans sell books which suggest many ways to get free money from the federal treasury.

Some hidden welfare benefits, such as food stamps and agricultural price supports are called entitlements. That means Congress has created a legal right for certain classes of people to apply for the benefits without further permission. The problem with entitlements is inability to control annual costs. It is difficult to know in advance the exact number of beneficiaries and total annual spending.

For more than 20 years entitlements have accounted for more than half of all federal spending. Add interest on the national debt and the costs of national defense, and Congress has only 25 percent of annual spending in which to find cutbacks. As a practical matter, if Congress were to cancel all the programs funded by the last 25 percentof spending, they would still be unable to balance the budget.

The federal government is currently borrowing 38 percent of annual spending. Under present laws and practices, the number will continue to rise indefinitely. Congress and the president have yet to demonstrate a willingness to change the structure of taxing and spending. Instead they keep rearranging the chairs on the Titanic, with blind hope that the ship of state won’t hit an immovable object and begin to sink before the next election. They call it kicking the can down the road.