Tuesday, February 15, 2011

Balancing the National Budget Is Going To Be Interesting

This is a very interesting national budget analysis by Annie Lowry in Slate.  Bottom-line, we need to either raise taxes by 41% to balance the budget or cut 30% of the budget (or some of both):
Next year, the government plans to take in $2.63 trillion—and to spend $3.73 trillion. For our purposes, let's use $60,000 as the government's income and $85,000 as its expenses.

Where does all of that spending go? Mostly, to mandatory programs, spending that does not change much year-to-year and is not easily reduced. But given that mandatory spending makes up about 60 percent of spending, if the debt is going to come down, these are the line items that need to change. Next year, Obama is requesting $17,400 for Social Security, $10,700 for Medicare, $6,100 for Medicaid, and $13,600 for other mandatory programs such as food stamps. There's no way around any of those expenditures, which total about $48,000—or more than three-quarters of the federal government's annual income. (Last year, mandatory spending alone actually exceeded income.)

Next up comes the discretionary budget. This is money that, in any given year, Washington is not required to spend—which is not to say that there are not obligations to be met. First and foremost is security spending. The country needs to fund the Afghanistan war and the Department of Defense. This is not cheap: In fiscal year 2012, Obama is asking for $20,000 for overall security costs.

So far, my friend, you're at $68,000. No cuts yet, and you've already blown your budget by about $8,000. But wait—there's more, as they say. You have to pay for all the debt you're ringing up. This year, you are on the hook for $5,500, and that is just for interest payments to creditors. So you see the problem here: Before you've even gotten to anything that anyone even talks about cutting, you're already about 25 percent over budget.

Then, we come to nonsecurity, discretionary programs—all of the money for bridges, schools, nuclear power plants, foreign aid, space flight, and everything else. Obama is asking for $10,400 for all of this, or about 12 percent of total spending. In the discretionary budget, the sums are astounding not because they're so huge, but because they're so puny: $400 on energy, $500 on agriculture, $1,000 on housing and urban development, and $1,800 on education, for example.

So where to cut? The White House is mostly focusing on those nonsecurity, discretionary programs. Next year alone, the federal government plans to cut from 200 of them—axing some of them entirely. This saves a grand total of $750, and includes reducing program funding even for the poorest Americans. For instance, the administration wants to withdraw $7 from the Community Development Block Grants program, which gives money to states and local governments for low-income housing and anti-poverty initiatives. Over 10 years, the White House takes $2,000 from Pell grants and other education initiatives. And its five-year non-defense discretionary spending freeze saves about $9,100 in a decade. The White House also takes about $2,000 from the Pentagon.

Obama also hopes to meet his goal of reducing deficits by $25,000 over the next 10 years by making some tax hikes. For instance, he hopes to end subsidies for oil and gas companies, raking in $1,100 over 10 years. He also plans to let the Bush tax cuts, recently re-upped for everyone, expire for those in the highest brackets.

All of this does help reduce the annual deficit—but in no year over the next decade does the government run a surplus. And the debt, the total amount the United States owes its creditors, remains enormous. In 2012, for instance, the White House estimates the total national debt to be about $379,300. By 2021, it will be about $600,600.

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