There's a good argument that the combination of low tax revenue and high entitlement spending poses as grave a threat to American national security as climate change or nuclear proliferation. A recent study by the nonpartisan group Third Way found that entitlement spending has risen from 14 percent of the federal budget, excluding interest, in 1962, to 47 percent today. As entitlements have gone up, investments have gone down, from about a third of the budget 50 years ago to less than 15 percent today. Absent legislative action, that figure will sink to 5 percent by 2040. In effect, the United States will be spending all its money on debt service, the Pentagon, and entitlements.
A debate over America's long-term competitiveness would, I concede, be something of a dialogue of the deaf, since today's Republicans don't believe in public investment, and insist that the country can achieve sustained and inclusive growth with a government radically smaller, as a percentage of gross domestic product, than that of any other major economy in the world. I'm not sure who's supposed to build all the bridges and airports and electrical grids which elsewhere in the world are being built through public investment, but America is, after all, an exceptional nation. The Republican approach, embodied in vice-presidential candidate Paul Ryan's Path To Prosperity, proposes deep cuts in Medicare, the single greatest long-term threat to the budget, but increases defense spending, which now constitutes one half of domestic discretionary spending, and cuts taxes yet further, setting a top income tax rate of 25 percent. This would make the question of investment a moot point, since it would produce in very short order the limited government that Third Way projects for 2040.
So the GOP may not have a stronger case on economic competitiveness than it does on terrorism. But Obama has hardly grasped the nettle either. He has presented himself as a champion of the middle class by embracing Bush's tax cuts for all those earning under $250,000. That may have made sense during the economic crisis, and it certainly plays well politically, but it is simply not a sustainable policy at a time when the baby boom generation is advancing towards retirement. Federal taxes have averaged 18.5 percent of GDP since World War II; you cannot get back to that figure simply by restoring taxes on the rich to Clinton-era levels. Obama also has a cost-containment plan for Medicare, but neither voters nor Democratic leaders want to hear about it, and he avoids the subject in order to concentrate his fire on the Ryan plan. His defense secretary, Leon Panetta, has described the deep cuts in the Pentagon budget triggered by the failed legislative deal of 2011 as "devastating." Right now, Obama is locked in a budget model which severely restricts his choices.
The other day, the New York Times carried a fascinating piece about the Encode Project, a federally financed program which has made striking advances on gene research. The funds come from the National Human Genome Research Project. I noticed that the Obama administration has proposed cutting its $500 million budget by $893,000, while keeping overall spending for the National Institutes of Health flat. When it comes to gene research, the cancer metaphor is both literal and figurative. Federal support for medical and scientific research both improves the lives of Americans and spurs technological development. Republicans seem to have concluded that federal funding for research is either an unaffordable luxury or an outright waste of money. The Democrats, should they be returned to the White House, will have to re-frame the economic argument to explain to Americans why this and kindred forms of investment are the key to our national security.
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