3 entitlements take nearly half of federal dollars

WASHINGTON — Three growing entitlement programs consumed nearly half of all federal spending in 2004, and budget analysts expect them to make up an even bigger share in the future.

Social Security, Medicare and Medicaid accounted for more than $1 trillion in the 2004 budget year, according to the Consolidated Federal Funds Report the Census Bureau is releasing today.

Overall federal spending was $2.2 trillion, an increase of 5 percent from 2003.

"The total federal spending increase is actually down a bit from recent years," said Gerard Keffer, chief of the Census Bureau's federal programs branch.

"It had been running 6 to 8 percent in the past several years."

For years, Washington has been fighting over how to manage the growth of spending on entitlement programs, which rises automatically according to set funding formulas. Analysts think the fight will continue for years to come.

"I think it's absolutely essential and inevitable that we are going to reform those programs," said Rudolph Penner, a senior fellow at the Urban Institute, a social-issues research organization. "How is another question. There's very little interest now."

President Bush has pushed to overhaul Social Security and establish private accounts, but Congress has balked. Critics argue that private accounts would do nothing to slow the growth of Social Security spending — unless benefits are cut, a politically unpopular option.

Spending on Medicare, the federal health-insurance program for the elderly, is set to increase with the introduction of a prescription-drug benefit in January. The federal government estimates it will spend about $724 billion over 10 years to provide the benefit.

Other factors contributing to spending increases include an aging population and soaring health-care costs, Penner said. The oldest baby boomers will start turning 60 in January, and once they start qualifying for Social Security benefits, costs will grow at an even faster pace.

Penner said increased spending on entitlement programs eventually will mean less money for other programs and increased pressure to raise taxes. "I think they're going to squeeze out all sorts of other spending items," said Penner, former director of the Congressional Budget Office.

The Census Bureau compiles the federal spending report each year with information from about 50 federal agencies, Keffer said. One purpose is to show how much federal money goes to each state.

The report excludes spending on foreign aid, international affairs and interest payments on the national debt, a total of about $200 billion in 2004, because those items do not go to individual states, Keffer said. It also does not specify spending for the Central Intelligence Agency, the Defense Intelligence Agency or the National Security Agency because those budgets are classified.

Among the report's findings:

• One third of all federal spending went to five states in 2004: California, New York, Texas, Florida and Pennsylvania.

• California led all states with $232 billion.

• Washington state received $44.8 billion, or $7,227 per capita.