The most pressing single problem that America faces today is its unbalanced budget replete with soaring spending, pitiful tax structure, and habit of kicking the problem down the road in favor of political expedience now. The budget for 2010 totaled $3.55 trillion dollars, while the CBO estimates that the average deficit for each year between 2009 and 2012 will be $1.21 trillion. I am not a national budget guru, but I believe that means that less than 2/3 of the US government expenditures are being accounted for in some sort of revenue. This sort of fiscal irresponsibility on an individual level is a large part of why so many people were hurt by the recession, and on a national level is dangerous and unsustainable. One need only look to our European neighbors to see the dangers of writing checks you can’t cash.This is a large and complex issue; in order to keep the posts manageable I will break this particular discussion into three parts. The first will discuss the theory of government spending and the budget as we know it. The second will be analysis and suggestions for solutions from the spending side and the third will do the same from the revenue side.
Consider the following example: a country has 100 citizens, each making $100 per year through private efforts. With no government, each citizen keeps that $100 and has a commensurate quality of life. As discussed in earlier Foundations, government is necessary and has purpose, so this country creates a small government. One man constitutes the government and gives up his job to do so. In exchange, his efforts are supported by each citizen being taxed an amount to create an equity between private and government quality of life. Now there are 99 people working, making $100 per year, and being taxed $1 each. This means they take home $99 per year, and the government makes $99 per year. The effect is minimal, but there is a government.
Now, consider a larger government. In this new example, 50 people work for the government. The remaining citizens still make $100 per year, but are taxed 50% to pay for the government. Now, each privately employed citizen takes home $50 per year and each member of the government makes $50 per year.
Although the latter example is extreme, it is intended merely to provide a point, that being that the same country will have a lower standard of living and productivity as the size of government increases. This is the part that is unsustainable and that is leading to problems around the world. A country can support a small and necessary government without much inconvenience, but as the elephant in the room gets larger, eventually someone must notice.
So how does the US budget actually break down? It is easy to get mad at congress and blame things like pork and bailouts, but looking at a budget breakdown is incredibly revealing. The five expenses that account for 75% of the budget are, in order:
1) Social Security (19.63% - $696.8B)
2) DoD (18.74% - $665.2B)
3) Unemployment/Welfare (16.13% - $572.6B)
4) Medicare (12.79% - $454.0B)
5) Medicaid/State CHIP (8.19% - $290.7B)
The other quarter of the budget, roughly $871B, is split among 26 other categories, to include everything that makes the government actually work. With only 66% of the budget actually paid for, congress could, under the current structure, cut the entire Federal Government with the exception of these entitlements and still not be able to afford to keep them running. So much for using a scalpel.
Many solutions for dealing with this problem are politically charged and may mean political suicide to the person who tackles them. This is one reason the problem is proliferating. However, there is a first step that is applicable to any specific implementation and also politically palatable: Congress should pass a law stating loosely that in no period (say, 2 years) could expenditures be greater than income, except in a time of declared war or declared national emergency. If these exceptions are used to create a debt, that debt must be paid off in 3-5 years (or some other reasonably stated time) per year that debt was incurred (for instance, a deficit is run for 3 years for a war, it must be paid off in 9-15 years).
This type of legislation would force Congress to answer some of the difficult questions that they choose to ignore for short-term political gain. It would circumvent the direct need to cut popular programs and instead allow Congress a freedom of action on how to implement a balanced budget subject to the wishes of their constituents. If Congress needed to raise taxes in order to cover temporary paydowns, it is important that these taxes be denoted as temporary and tied to a particular deficit that would cause them to automatically expire once that debt was completely paid down.
While I think that this first step is both universal and essential, there are many specifics that still need solutions. The next discussion will focus on solutions for the expenditures side of the house and discuss not just what and how much to cut, but how to proceed honorably and continue to meet all commitments into which we as a government have already entered. Following that, I will make suggestions for income based not only on following the letter of the Constitution, but also respecting what it tried to create. The President mentioned his desire for a simplified tax code in his State of the Union Address, and I will include my vision for how that can be accomplished within the principles of Liberty. I hope that many of you comment on these entries and we can enter into an intelligent, rational discussion with sights set on solutions to problems.
3 comments:
"in no period (say, 2 years) could expenditures be greater than income"
This is similar in concept to the Taxpayer Bill of Rights in my state. Problem is that it encourages politicians to find new sources of revenue rather than watch spending. I'd suggest limiting spending to no more than growth in GDP.
So then we arrive at the real problem (including a key reason something like the Ryan plan won't work): no congress can bind the hands of a congress that follows it. Even if we get universal agreement on a 10-year budget tomorrow, next year's congress will write its own budget and spend whatever it wants.
I had not used that terminology to look at the problem before, but I think it helps. There is one way to bind the next Congress, and that is by Constitutional amendment. Perhaps what we need is to change the Constitution itself? Perhaps an amendment like "the government may not spend more money than it takes in revenues in any given year, except in a time of war. In that case, the debt must be paid off completely in XX amount of time." With the political sensitivity of raising taxes, the voters would then keep spending low by not allowing the tax increase necessary to spend more? What do you think?
A constitutional amendment would be the right path, and I know that Republicans are trying to get support for a balanced budget amendment.
The Colorado taxpayer bill of rights requires direct voter approval for any tax increases, and it's a process that works well. It won't translate directly to the national level, however, since there is no process for we voters to vote on legislation. It all has to go through our representatives, and they can't always be trusted.
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