Every time there is a down cycle in the economy, there is a cacophony of demands to cut taxes, slash “entitlements,” and balance the budget. All things equal, lower taxes and more efficient government programs are desirable, but just how bad are things really, and what can be done about it? Let’s drill down on the data and see if we can critically and calmly assess the situation.
In 2009, the Government received $2.7trillion (income tax, social security tax, corporate taxes, etc.), and created a budget of $3.1trillion. By the way, the wars in Afghanistan and Iraq aren’t part of the budget, and there are other mandatory expenditures which are also off budget. As best as most experts can tell, we had a deficit of about $1.4 trillion in the 2008-2009 budget (Bush’s last), and to balance the budget by 2015 will take finding over $1trillion each year. So, where do we find that?
Of the $2.7trillion taken in, 54% ($1.5 trillion) was spent on military-related items including 80% of the interest on the national debt which was created due to military spending. This is important folks, so I will repeat: 80% of interest paid on the national debt is directly related to the debt incurred to support the military. Most analyses of the US Budget create a separate wedge in the budgetary pie chart called “interest on the debt,” never identifying where it came from. This masks the source of that interest which is debt to support the military. Roughly $200billion of this expenditure is “The Global War on Terror.” Of course defense spending is a sacred cow. No Republican would vote to cut defense spending , and woe to the Democrat who tried. He would be called an unpatriotic traitor. O.K., so where else do we cut?
Social Security makes up about $644Bilion of the budget, no politician is willing to touch this one either. Can you imagine the political ads against the guy who tried to cut grandma’s social security? Where do we look next?
Medicare is $408Billion, the bulk of which is for the Bush prescription drug program passed in 2003 with a 10 year cost around $1trillion. Again, imagine the ads of the politician who suggests cuts here.
The next biggest item on the list is a big bucket of safety net programs that includes unemployment and poverty related benefits to the tune of $308billion. We could take a whack at that. Assuming most Americans are compassionate and wouldn’t want to eliminate these programs, how much would you be willing to cut to balance the budget - $10billion, $50billion, more? You think there is fraud? How much? 50%, more? Independent analysis suggests that the range of fraud could be as much as 20%. We could invest in more oversight to reduce that amount, but it is well understood that you reach a point of diminishing returns pretty quickly. Even if we magicly cut benefits by 20% to save $60billion per year, we are a drop in the bucket on the $1trillion-plus needed. But does cutting the deficit really matter?
The deficit, which has been rising since the Bush Tax Cuts eliminated the surplus created during the Clinton era, is roughly 10% of GDP, and not near any historical highs. Likewise, our overall debt is not particularly high by historical standards on an inflation adjusted basis. For example, we have roughly four times as much debt today as we did in 1950, but we have over 12 times the GDP. When making historical comparisons, make sure you do it on an inflation adjusted basis! It’s not the absolute numbers that matter. Our national outlays continue to run at roughly 20% of GDP. You can play with all of these fun numbers at http://www.marktaw.com/culture_and_media/TheNationalDebt.html and http://en.wikipedia.org/wiki/2009_United_States_federal_budget
But lets say, you still feel strongly that “something should be done” to reduce the debt and/or deficit. Well, like all good politicians, President Obama has assembled a blue ribbon bi-partisan commission to look at getting the budget balanced by 2015. The panel is made up of Republicans and Democrats and thought leaders from industry and academia. You’re gonna love what they came up with.
Well, I’m sure they saw, what you see when you break down the budget. Going after things like welfare, or NASA or National Endowment for the Arts, might feel good at some base level, but it won’t save much money. No, the real money is in middle-class entitlements (and defense, of course). So, if you want to balance the budget by 2015, the panel recommends saving $1 trillion dollars per year by eliminating or reducing
1. Interest rate deductions on home mortgages.
2. The child tax credit
3. The ability to pay health care premiums with pre-tax dollars.
They also saw the obvious need to go after defense spending, honing in on what we spend with outside contractors. Passing this through Congress should be fun. You can read about the committee at http://online.wsj.com/article_email/SB10001424052702304354104575568643889337142-lMyQjAxMTAwMDIwNTEyNDUyWj.html
Maybe, the deficit isn’t so bad after-all?
Yo Craig, where's the strong joe here? I wanted some debunking on this issue. Why the hell are voters willing to raise their sales tax in North Carolina but are sending tax-cutting Tea Partyers to Congress. The way out of the deficit mess is to cut expenses AND raise taxes. You can't do both; if you do, you go insolvent. Keep digging DeLuca!
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