$14 Trillion and counting....

Fourteen trillion dollars – it’s almost unfathomable!

In his State of the Union address the President proposed a five year freeze on Federal spending as part of the strategy for reducing the federal budget deficit.  While other measures are sure to come, all things being equal, if we simply freeze spending to 2010 levels we’ll acquire another $6 trillion in debt over the next five years.

Serious austerity measures that address balancing the budget will require “trimming” annual federal spending by $1.2 trillion per annum – our projected budget deficit for 2011 is $1.5 trillion!  What is more mind boggling about this equation is that after mandatory spending  is accounted for – it leaves approximately $200 billion to spend on discretionary budget items – Discretionary spending includes such frivolous things like Defense, Justice, Veteran Affairs, Transportation, Homeland Security (which also includes my favorite government agency – the Transportation Security Agency!).

When you consider the annual Defense budget currently sits at roughly $700 billion you can start to get your mind around the issues we face.

Every dollar we allocate and spend over the $2.2 trillion threshold (or roughly the amount of revenue the government receives through taxes and other means) is a dollar borrowed.  Every borrowed dollar requires adding to the pot of monies, plus interest, that will be a part of future mandatory spending.

There is nothing partisan about this – it’s simple mathematics.  Where it becomes a partisan issue is the modalities needed to rein in the deficit.  Current schools of thought, as presented by our Democrat and Republican representatives, goes something like this:

Democrats want to raise taxes and “invest” (notice the choice of word) in government programs that will help poor Americans (this includes the working poor and the lower middle class that is increasingly in danger of slipping into poverty).  Tax hikes are targeted to the richest of Americans – those households earning more than $250,000 a year; however, the tax “hike” is a misnomer as it is simply a restoration of the tax rate to where it was in 2000 pre-Bush tax cuts.  Meanwhile, Democrats – other than the President - have yet to demonstrate a substantial plan for spending cuts and deficit reduction.

Republicans, and especially the right fringe – the Tea Party, propose to cut taxes as well as spending.  It would appear rather counterintuitive, but Economic History 401 teaches that the more money Americans have – especially wealthy Americans – the more money will be invested into businesses that will in turn hire more people, adding to the tax rolls and create more tax revenue.  This economic model has been the cornerstone of the Republican Party since Ronald Reagan took office.  Supply-side economics, voodoo economics, trickle-down theory have all been used to describe, or deride, the idea behind it.  

Sadly, our nation’s leaders on both sides of the aisle are both right and both wrong and without the willingness to compromise on a serious austerity program that leads to annual budget surpluses and where those surpluses are devoted to lowering the national debt, we will find ourselves in a hole that we never be able to recover from. 

In five years, without changing course, our national debt will exceed $20 trillion!

There are two ways to look at the big picture.  This graphic illustrates last year’s budget.  Mandatory spending accounted for nearly 90% of government revenues.  In order to fund the vast majority of discretionary spending we have to borrow money.

But if you really want to hurt yourself and be hit with the staggering enormity of the problem click here [Warning – can cause seizures]:

http://www.usdebtclock.org/

It doesn’t get better in 2011.  The proposed budget will be for $3.8 trillion while revenues are expected to come in at $2.3 trillion leaving another $1.5 trillion we’ll need to borrow and grow the national debt to almost $16 trillion and counting.

Spending must be cut – has to be cut – but what gets cut? I’ll vote for TSA, but that’s just a drop in the bucket.  Seriously, the blue bar (Revenues) has to go above the red bar (Spending).  The most obvious of the discretionary spending items where money can be trimmed is in the defense budget.  But cutting defense, and correspondingly Veteran Affairs in a time of war is about as politically popular as farting in an elevator.  Moreover, defense jobs (both public and private), exist in almost every state and congressional district further making defense cuts even harder for politicians.

The tax cut, spend, and borrow approach the Republicans have employed for the last 30 years is an abysmal  failure.  What’s more, even if they were once correct in assuming cutting taxes will spur economic growth in America – those days are behind us now.  [For reasons why, read my article on Redoing Education] The Global Economy of the 21^st century is not what it was when Reagan took office.  They need a new approach!  Sure it will win them votes among angry voters, but rhetoric alone will not fix this problem.  Fixing one side of the equation will not get us there – frankly speaking, we’ll need to raise revenues (i.e., taxes) as well as cut spending, to get out of this mess.  Over the next several weeks we’ll explore ways to fix this problem – after all, it’s our money – yours and mine – we have a vested interest in how it’s spent!