Let’s have a little fun with the Federal budget, to maybe get some perspective on what to cut. First off, as of fiscal 2011 (year ended September 30, 2011), we spent $3.6 trillion… but only took in $2.3 trillion. Hence our $1.3 trillion annual Federal budget deficit.
So if we can’t raise revenue, we need to come up with ~$1,300 billion in cost cuts. Let’s look at some common ones thrown out there by our politicians, when they are trying to avoid giving a hard answer to a hard question (which is invariably)…
Like Governor Romney’s recent (and way over-publicized) comments about firing Big Bird. So let’s shut down the entire Corporation for Public Broadcasting which funds among other things, PBS, NPR and the show that his Presidential debate moderator, Jim Lehrer, hosts. And let’s get rid of those hippie-loving National Endowments for the Arts and Humanities. Art, history and philosophy is for losers anyway. And do we really need to keep track of what our politicians say? They never deliver on what said. So take out the National Archives as well. And the world already totally loves America, right? So get rid of the Broadcasting Board of Governors, the guys who run Voice of America and Radio Free America. And what have those foreigners done for us lately, anyway? So no more Peace Corps. Further, I find museums boring. So no more Smithsonian Institution. Aside from looking after Indiana Jones’ ark, I have no idea what they really do anyway.
That’s a good start, right? Sounds like we made some progress. So where does all that chopping get us? That has reduced our gaping $1,300 billion annual deficit too… $1,297 billion. That’s it! Take away, forever-more going forward, all that those institutions contribute to our culture, in exchange for barely even scratching the surface of our annual problem. That is not a good cost-benefit plan.
OK so what about NASA? Their total budget is $18 billion, and only $8 billion of that is actual science and exploration. The rest of it is for stuff like babysitting our satellites. So take out the National Science Foundation (the “NASA” of all things not in space), which is only $7 billion. The Small Business Administration? $6 billion. Federal Communications Commission? $9 billion. The Environmental Protection Agency? $11 billion. Corps of Engineers? $10 billion. The entire Department of the Interior (mostly runs our parks and preserves and, oh yeah, regulates guys like BP)? $14 billion. National Oceanic and Atmospheric Administration (NOAA)? $ 5 billion.
Take out all of those as well (which is unrealistic), and we still have a $1,217 billion problem. Every year. Defund all of those programs, and we have only reduced our current deficit by 6%. So whenever you hear anyone suggest the above, you are free and clear to roll your eyes and stop listening to them.
The vast majority of our $3.6 trillion budget is some form of social subsidy, entitlement or welfare transfer payment. Basically the cumulative result of our politicians trying to buy our votes over the years. Perusing the budget, I added-up almost $2.4 trillion in effective hand-outs. Two-thirds of it! All basically mandatory, meaning can’t be cut without changing the law. Which requires Democrats and Republicans cooperating (which I think they actually will do into the next term). $780 billion of that was Social Security payments. $760 billion was for Medicare and Medicaid. (Both net of receipts from the public). The rest is stuff like benefits for Veterans and civilian government employees, unemployment insurance, food stamps, Section 8-like housing, farm aid, etc.
I also identified ~$750 billion in expenditure related to defense and security. That ranges from Army/Navy/Air force to FBI, DEA, ATF, Bureau of Prisons, Secret Service, Coast Guard, Capitol Police, etc. But it excludes Veterans’ and other related benefits (they’re subsidies).
(Now this won’t add up perfectly doing it this way because of inter-agency eliminations and unallocated disbursements but…)
In fact, after combing through every single line item, I could only find about $365 billion of that $3.6 trillion that was actually for operating the government; and not some form of hand-out, or defense and security related, or the gross interest on the debt (which is now over $450 billion, even in this super-low interest rate environment, by the way), or payoffs to foreigners (which I could only find about $33 billion).
In other words, if you shut down the entire operating government unrelated to defense and security that would only reduce our annual deficit by less than one-third.
So we can raise revenue. We can raise taxes and kick an already weak economy in the ribs. Or we can pray or figure out how to grow the economy itself. Income and payroll taxes in fiscal 2011 were $2.1 trillion – the vast majority of the Federal government’s $2.3 trillion revenues. It is also 14% of GDP (national income approximates national output). In 2006 when the economy was stronger (and with the same tax rates as 2011 basically, except for some temporary present forgiveness), those taxes were 16.7% of GDP.
So if we could strengthen the economy, get people working again like 2006, just using this simplistic and sloppy back-of-the-envelope math, that could add ~$400 billion in revenue right there without raising taxes on anyone. Cut our debt in half (where we were just four years ago), and interest on it drops by maybe ~$100-150 billion. Go back to a pre-“War on Terror” style of defense/security, that could save ~$100-150 billion. And I believe there's ~$50-100 billion of Recovery Act related and/or depressed economy expenditure that would go away.
So that right there takes out maybe ~$500-700 billion. But that still leaves a ~700 billion hole to fill. And, PS, there is absolutely no guarantee that our economy or debts will return any time soon to pre-financial crisis levels. The only thing left at that point is I) raise taxes (when the economy is fit) or II) cut social hand-outs – the lion’s share of the latter being Medicare/Medicaid and Social Security. Or do both.
This is the conversation that our elected representatives need to be having with us. (And before the elections.) It’s going to have to come from everywhere – and that includes higher taxes on everyone, as well as cutting social subsidies promised to us over the years, but now cannot be delivered as promised.
So it might be easy to laugh at Governor Romney suggesting we fire Big Bird. At least for Democrats. But aside from their laughter, I don’t hear anything serious coming from the Democrats either. That’s because they all know about the substance of the above analysis. And they are doing everything they can to avoid having to talk to us about that.
But we’re going to have to talk about it at some point. And I really hope we start to, before the world currency and bond markets force us to. Because at that point, it’s too late. So, OK... "ha ha ha, fire Big Bird..." now please let’s dust-off the Simpson-Bowles Plan and get the conversation going already.