Let's turn our attention to the federal budget. A lot has been said about balancing the budget and cutting certain parts of the budget. Unlike many of our lawmakers, I've always thought that the best way to tackle a problem is to actually look at the problem. So, here is a pie chart representation of the 2010 federal budget for your enjoyment.
In the spirt of the fireside chats, I thought I would talk about this in simple language. All of my regular readers are bright and intelligent folks, but I thought I would keep things simple in case I have some guest readers that need a little help. The heck with macroeconomics and fancy accounting. Let's focus on the way you would handle your own budget at home. First, let's begin by asking a few pertinent questions.
1) How many of you have a mortgage payment every month?
2) How many of you have a car payment every month?
3) How many of you carry a credit card balance?
If you have answered yes to any of these questions then you are officially deficit spending. Naturally, many of you also put money into savings every month, so you save and owe at the same time. It is a remarkable dichotomy when you think about it. The federal government does many of the same things. It does not save as much as it should, but like us, it deficit spends. So, imagine if you had to make it without deficit spending. Buying that house would be impossible. Have you ever paid cash for a new car? I guess you better go to the used car lot down the street.
Even the most careful of people must go into debt. The question is how much debt is a good thing and what exactly are you going into debt for. Buying a new car every 5 to 6 years is not a bad thing. If you wait longer than that then you are really being responsible. Buying a new home is also responsible if you can afford it. Buying the newest television or toy from Best Buy might not be quite as responsible. So, when the deficit hawks come on and start babbling on and on about balancing the budget, just remember that the federal budget is a lot like your budget.
Still, you don't buy those big ticket items every year, so you don't allow for it in your budget. So some belt-tightening is in order. When we tighten our own belts we come up with a pie chart like the one above. Where does most of our money go? Can we cut in those areas? The two biggest expenditures above are DOD and the interest rate. The interest rate cannot be cut by itself but will go down as spending is reduced. During the Clinton Administration, DOD expenditures were between 300 and 350 billion per year. Now, they surpass 700 billion. If we assume that the rate of inflation is five percent on the average (a bit high but easy for calculating) then we can multiply that by 17 (1993 + 17 = 2010) and come up with 85. Multiple 350 times 1.85 and you get 647 billion dollars. So, we inflated inflation and still we see we are outspending it. In reality, inflationary figures should put defense spending at around 530 billion (multiplying by a 3 percent rate).
If DOD spending were at the 530 billion mark we would be more than halfway to our goal. So, do you see a Republican Congress making such a cut? I sure don't. Yet, if they did then you could cut the deficit by somewhere close to 75 percent just by the cuts in DOD and the interest rate combined. How would one do that? It's really quite simple. You withdraw the troops for Afghanistan and Iraq. One could make additional cuts from taking troops from other occupied lands. Of course, that's just a suggestion.
The Republicans want to cut entitlements. Hey, let's get those lazy bums off the street and into a minimum wage job. Then, they become lucrative as tax payers. When you look at the pie you see that health and human services combined adds up to the same total as the interest rate. So, let's say you manage to cut those in half with the combined effects of the health care bill and any entitlement cuts you can make. You are still talking about a smaller cut in the budget than the interest reduction from the defense cuts alone.
In other words, when you look at the small stuff you are sure to score points on symbolic gestures, but like with your own budget, you won't get very far. Take away $10 a month from the entertainment budget, and $20 from the electricity bill and you will feel good about yourself, but you probably aren't that much closer to balancing the budget. Remember, you don't have to, so the federal government doesn't have to either. They just have to be able to make it year to year. Some cuts are always helpful in that regard, but they aren't absolutely necessary. The Republicans know this. They know they can score cheap political points by clamoring for it. Notice how they pipe down when anyone suggests cutting the biggest part of the federal budget.
You place entirely too much faith in the wealthy conservative. I can assure you once it became every man/woman for self, the predator would move in and extort EVERYTHING including pride and dignity. They do so now, why would that change? It cannot be assured that any fund that accummulates overtime will continue to accummulate or even continue to exist when it lies in the private sector. What then?
You're welcome. Thanks for the thoughtful response.
Discretionary vs. Mandatory spending has always been a nebulous distinction for me. Prior laws are what obligate current mandatory spending, yet congress has the power to change the underlying laws...does that make all spending ultimately discretionary?
I think you hit the nail on the head though: Republicans and Democrats alike are not willing to touch the sacred cows of Social Security / Medicare / Medicade. Right now it would be political suicide in either party to do so.
As for real suggestions:
1) Educate the general public about basic finance and the need to spend less than you earn. Highlight the large shortfall the nation will be facing as more baby boomers move into retirement and the potential negative economic consequences associated with a growing deficit. Only once public opinion shifts will we start to see politicians willing to support reductions in Social Security / Medicare / Medicade.
2) Take steps to eliminate partisan quarreling. Both parties have failed to achieve sustainable budget surpluses for the past 35 years (The end of Clinton’s 2nd term excluded). Find and support candidates that are willing to trim spending, even if it is painful in the short term. Don't elect the candidate that will create / preserve the most jobs in your region by sustaining broken programs (fighter jets?), rather, elect the one that will spend (and not spend) wisely, even if it means some sacrifice in the short term.
3) Implement a scheduled phase – out of Social Security. Example: Everyone 60 – 65 may collect at age 65. Everyone 50 – 60 may start collecting at age 70 (similar to your suggestion below). Everyone 40 – 50 may start collecting at age 75. Everyone 40 and under is ineligible for benefits. They’ll have 25 years to practice their own personal fiscal responsibility to prepare for a retirement that isn’t subsidized. Keep collecting FICA from all eligible wage earners until the program is phased out. It is a bitter pill to swallow, but I think many under the age of 40 have already made peace with the fact that they are paying into a system that they won’t benefit from.
4) Implement a similar plan for Medicare / Medicade, but on a percentage basis. 60-65 would receive 100% of the promised medical benefits. 50 – 60 would receive 90%, 40 – 50 would receive 80% etc. until the system is sustainable (Medicare taxes in = Payments out)
This, of course, is just a framework: the devil is always in the details. Numbers would need to be tweaked, exceptions made, insanely complicated IRS forms generated etc. but it is disheartening that currently, none of the politicians will even go near it.
a fine dissection Scott - the federal budget is not like the check register we all keep on our personal bank account; in fact, none of us run our mortgage-laden lives the way the deficit hawks are trying to portray what makes up the country's finances.
the simple sound bites being thrown around are designed to promote fear and doubt in our government and ourselves; they play well in areas that are not cosmopolitan or ethnically diverse, where people's neighbors can often tend to pretty much look and think like each other.
Houston has seen this type of politics before, and should reject wedge politics aimed at creating an ' us ' and ' them ' mentality like skittish sheep running in panic from wolves each time a politician says ' boo ' or ' be afraid ' or ' danger, will robinson, danger '.
Thank you for adding that in. Of course, we beg the basic question of what is the opposite of discretionary spending? That would be non-discretionary spending which is fixed by definition. The problem with the "cut entitlements" crowd is that they don't tell us what we want to cut. If spending within your means is really a priority then step up to the plate and make some real suggestions. The Republicans are playing this kind of perverted Socrates where they don't offer any real suggestions. They just shoot down yours. I can only assume that they have no real interest in balancing the budget. They just want to make it look like Obama has no interest in balancing the budget.
However, you are correct in your assessment on real dollars being spent. The problem is that most of those dollars are tied up in a contract that the government has with its citizens. Now, the contract can be altered in a couple of very easy and fundamental ways. First, they could raise the retirement age up to 68 or even 70. Secondly, and much more effectively, they can lift the cap on FICA withdrawals from our pay checks. That would make social security solvent by itself. Of course, we can't do that because that would upset rich people.
I think you should be a little more clear in your article and note that your pie chart only shows the budget for *discretionary* spending in 2010.
See http://en.wikipedia.org/wiki/2010_United_States_federal_budget for the entire US federal budget. If you don't want to take Wikipedia's, check the numbers against the official release, available here: http://www.gpoaccess.gov/usbudget/fy10/
I agree that we, as a country, should take a serious look at reducing the defense budget; it certainly dwarfs all other *discretionary* spending.
Your analysis of the effectiveness of cutting entitlements however, is flawed. The entitlements aren't covered under the "Health and Human services" line item. They are covered under the Social Security, Medicare, Medicade, and Unemployment / Welfare / Other line items (mandatory spending) which you conveniently left off your chart. Combined, these items total more than 2 Trillion, compared to 664 Billion for defense. Interest on the debt is shown as 164 Billion. So cutting back on entitlements could indeed have a *profound* effect on the federal budget.
In summary: making cuts to the defense budget would be a good start, but referring to the entitlement programs as "small stuff" is misleading: the numbers certainly paint a different picture.
Remember what has happened when Obama has tried to cut Defense projects that are outdated or unneeded like fighter jets? Members of Congress, both Republican and Democrats, scream 'bloody murder' because they will lose jobs in their state or district.
It's amazing how people are budget hawks except when cuts affect them (NASA). Then it's spend, spend, spend. We need more of what Richard Clarke talked about on Olbermann last night, Base Realignment and Closure Commissions where they can make cuts that Congress can't stop.
nuthin' against cats...it's just a thing. The person lives in a city where an animal control officer nearly had me thrown in jail for not immunizing an adopted kitty. It's a really long story that I'm sure would bore both of us to tears. The most noticeable thing about this individual is that nobody notices this individual...kind of scary, huh!
Um AH, I LOVE cats but teabaggers make my blood boil! The real litmus test is does you teabagger friend follow "Jersey Shore" religiously...and believe it is real life? After all, isn't that why they call them "reality shows"?
The thing is that nothing is truly off budget. They just may fall under a different section than we might think. DOD would seem to be the place for those so-called agencies although they may fall under the state department.
The point is that there is protecting yourself and then wasting billions to keep jobs on track. Those that fall prey to the budget hawks speeches don't realize that every time you make a cut you effectively cut a program and/or a group of people's jobs. This is the main reason why the Paul Krugmans and Thomas Friedmans preach AGAINST deficit reduction.
They Keynsian economic model preached spending during recessions/depressions and deficit reduction during good times. During good times, those that lose their jobs in government cutbacks can find private sector jobs. Those jobs aren't there right now, so cutting those jobs now would be catastrophic.
On a sidenote I discovered one of my colleagues is a bonafide teapartier.
Honest description:
Kind of a loser
looking for someplace to belong
feels unappreciated
likes cats
is a a marginal employee
This person was disseminating propaganda that is completely senseless. One of my friends (who is an immigrant but carries well-worn racist characteristics) was all over the material. Truthfully, the people that fall for this stuff REALLY are not the brightest bulbs in the basket. Any native intelligence that may exist is stultified by negative emotion and self-interest.
That's a beautiful chart...
The right would say that the only legitimate governmental expense would be the Pentagon and then proceed to argue for every other budget slice save anything that actually helps American citizens in a straightforward fashion. Very interesting, indeed!
The administration slice appears a little hefty... :O)
Hi, Scott,
Which pie pieces(s) contains these agencies?:
http://www.politicsdaily.com/2010/07/19/top-secret-america-washington-post-unmasks-unwieldy-security/
Surely, this segment is a bit overloaded as well as DOD and I am guessing that a significant overlap exists.
Thanks!
Elizabeth
PS I won't be surprised if the budget numbers for these agencies are "off budget."