Tuesday, April 19, 2011

Federal Budget Deal - Part 2

In Part 1 of this budget series I concluded that the recent federal budget deal succeeded in making some spending cuts and moving the overall debate to a place where we're debating where and how much to cut rather than if we should cut. However those "cuts" still leave us with a Fiscal Year 2011 deficit approaching $1.5 trillion, which means that this deal is only a success if it leads to long-term reforms that bring down the deficit.

In FY 2010 the government revenues were $2.16 trillion and spending was $3.46 trillion. How long could a citizen avoid bankruptcy if he brought in $21,600/yr and spent $34,600/yr? This level of irresponsibility would be catastrophic to a regular person and it's a catastrophe for our country. In fact, just today S&P shockingly downgraded our country's outlook from stable to negative due to our mountain of debt. To understand what must be done starting with the FY 2012 budget, first we need to understand where the money is going.

Social Security cost $701 billion. Medicare was $446 billion. Medicaid cost $273 billion. These 3 entitlement programs by themselves cost $1.42 trillion. Important to note: in each program costs are projected to explode in the next 10 years. Currently those 3 programs alone are expected to nearly double to $2.67 trillion in 2021. They must be reformed if we have a chance at getting control of our budget.

Excluding the repaid TARP money, the federal government spent a total of $2.064 trillion in FY 2010 on entitlement programs. In addition, the government spent $196 billion on net interest payments to the holders of their debt. The government is obligated to make all of these expenditures.

The entitlement programs and net interest payments combined cost $2.26 trillion. Yet total government revenues were only $2.16 trillion. In other words, the government was already $100 billion in the hole before it authorized a penny of spending!

Security spending, which includes Defense spending, Homeland Security, Veterans Affairs, and other security-related expenses, totaled $815 billion. Non-security discretionary expenses were $491 billion.

With these numbers in mind, let's return to the recent budget fight. Congressional Republicans focused exclusively on non-security discretionary spending for their spending cuts. They ignored the other 86% of the budget. The government could shut down the entire military, all homeland defense, and all other discretionary spending, and it still wouldn't be able to balance the budget.

It's time for everyone to grow up. We can't afford any further tax cuts. We can no longer refuse to make significant changes to entitlement programs, that by themselves are consuming most government revenues. We can no longer exempt the military from spending cuts, pay freezes, and all other reforms that other government agencies are already being forced to accept. Needless to say, Democrats must accept the fact that non-security discretionary spending must be cut. But that can only be a start. Everything has to be on the table.

- Part 3 of this series will list a number of cuts and reforms that we must make if we are to save our country from a fiscal meltdown.

5 comments:

  1. Cuts to Social Security, Medicare, and Medicaid won't happen until those receiving those benefits are prevented from voting (as is often the suggestion of Libertarians with regards to welfare). In other words, everyone born after about 1970 is doomed to a lifetime of paying higher taxes to keep to older generations afloat, while at the same time being scolded by old people for complaining about the situation.

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  2. Yawn. Why don't you just print Hannity transcripts word for word?

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  3. While I disagree with COAST on the streetcar issue, I've found these posts quite interesting. I have a few questions just out of curiosity and don't necessarily disagree with all the points presented in parts 1 and 2.

    In the recent debate, Boehner repeatedly made headlines about the Planned Parenthood issue. Meanwhile, the opposition claimed that it was such an insignificant cut and that he was just bolstering an ideological position.

    Now, regardless on views regarding the moral issue of abortion, do you feel that cutting Planned Parenthood was really an attempt at cutting spending or was it an ideological push? I have a complicated view on the subject of abortion, but it seemed to me that it was so insignificant of a cut that it could've been decided later instead of threatening a government shut down. However, the day this was all going down I was working and following along listening to talk radio and limited internet access so maybe this wasn't the only issue. Just curious as to your thoughts on this.

    Second, with the US currently involved in two overseas conflicts is it even possible to get on top of spending when we're spending so much on the aftermath of two wars. Now, I'm not debating the justification of those wars and regardless of where you stand we're there and have to deal with it, but when do we begin cutting too much at home while still maintaining a presence in Iraq and Afghanistan?

    Just curious as to the author's thoughts.

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  4. Q: "Now, regardless on views regarding the moral issue of abortion, do you feel that cutting Planned Parenthood was really an attempt at cutting spending or was it an ideological push?"

    A: The push to cut PP's funds were definitely motivated by both moral and fiscal factors. How much of each? I'm sure it depends on each individual. Some in Congress are more motivated by fiscal issues, some by moral issues.

    The moral reasons for wanting to deny federal funds to PP are obvious. Fiscal reasons are sound too. Balancing a budget that borrows 40% of what it spends will require a few huge cuts and thousands of "smaller" ones. This is one of the "smaller" cuts that needs to be made.

    Q: "Second, with the US currently involved in two overseas conflicts is it even possible to get on top of spending when we're spending so much on the aftermath of two wars."

    A: Not a chance. We are going to have to make significant military cuts. That includes getting out of Iraq, Afghanistan, and Libya. Military cuts doesn't mean we stop being strong on defense. But we're going to have focus on strong DEFENSE, not on being the world's policeman which we can no longer afford.

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  5. J. Haap (rhymes with crap)April 23, 2011 at 7:52 PM

    Is there room in the budget for an unemployed teacher stimulus? I'll need a job when I get laid off from the Princeton Schools at the end of the school year.

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