Wednesday, June 30, 2010

So what do we cut?

To say that the federal government's spending habits are out of control would be something of an understatement. In relative terms, the national debt of the United States is expected to reach 62% of the nation's Gross Domestic Product (or GDP, a measure of the nation's overall economic output) by the end of the year. In raw numbers, the amount of money that the government owes its creditors, both foreign and domestic, is an absolutely staggering 13 trillion dollars (or, for the visually inclined, $13,000,000,000,000.00). And the number is riding higher every day. This is an unsustainable path that will inevitably and eventually lead the nation to economic ruin.

There's been a lot of partisan finger-pointing as to who is responsible for this mess, when the fact is that both political parties are to blame for the reckless spending practices that got our nation into this predicament. By extension, we, the voters, are to blame as well: we demanded more spending and lower taxes but didn't hold either ourselves or our elected officials responsible for the changes that need to be made in order to restore this nation to fiscal responsibility.

But it really no longer matters how we got into this mess. What matters now is how we get out. There are two ways to reduce the nation's overall debt: collect more revenues (i.e. raise taxes) or cut spending. Neither option is particularly palatable but, of the two, the latter is obviously the lesser of two political evils.

But what do we cut? The American people seem to have their ideas about what needs to be sliced away from the federal budget, but there is a pretty significant disconnect between the programs that most people want to cut and the amount of the budget that these particular programs account for. In other words, the programs the American people want to see cut are the programs that affect the budget deficit the least.

This is because roughly 81 percent of the federal budget goes to programs that either cannot be cut (like interest on the national debt - cut this and the US government defaults and the dollar becomes worthless) or which are very popular among Americans (Medicare, Medicaid, social security, unemployment insurance and national defense). And there are still a lot of popular programs in the remaining 19% of the budget: transportation infrastructure funding, benefits for retired veterans and federal workers, funding for education. Check out this pie chart.

The fact is, if the United States is ever to return to a path of fiscal discipline, it's going to take some hard, politically-unpopular choices. Everything from raising taxes to cutting "sacred cow" entitlement programs needs to be on the table, because that's the only way significant changes to federal spending are going to occur. There's also the issue of whether these cuts should occur now, depriving the economy of public-sector inputs even as there are signs that the nascent economic recovery is weakening.

What do you think needs to be done? The folks at the Committee for a Responsible Federal Budget have created a neat online simulation where average citizens like you and me can try to get the nation's debt down to a relatively manageable 60% of GDP. The idea of this exercise is not to eliminate the national debt completely - I'm not sure it's reasonable to expect that any sovereign government would ever be completely free of debt - but rather to get the national debt to a point that it is controllable, i.e. it is no longer growing and the interest payments on it don't account for more than a few percentage points of annual federal expenditures.

I was able to achieve the 60% mark, but it meant that I had to do things like make weapons systems cuts, reduce food stamp benefits to 2008 levels, raise the social security retirement age to 68, increase the Medicare retirement age to 67, raise Medicare premiums to 35% of costs, eliminate farm subsidies and subsidies for biofuels (I still say corn-based ethanol is a famine-inducing scam) kill NASA's Mars program, increase the gas tax (which needs to be done anyway), and curtail state and local tax deductions. I did fund a new jobs bill and increase federal funding for mass transit.

Easy enough for me. But imagine you're a minimum-wage-earning food stamp recipient, or someone in their sixties preparing for retirement, or an elderly Medicare recipient living on a fixed income, or a corn farmer in Iowa, or a defense contractor in California, or a NASA contract engineer down in Clear Lake City, or an SUV owner who commutes 80 miles round-trip everyday (okay, I really don't have a lot of sympathy for this last person, but...). Put yourself in any of those shoes, and you'd probably take issue with my proposed cuts.

Which is why it's so hard to agree upon and make the changes that need to be made in order to reign in the government's runaway spending habits. Seriously. Try it for yourself.

But we have to do something. As the CRFB states, the public debt of the United States will otherwise reach 85 percent of GDP by 2018, hit 100 by 2022, and top 200 percent in 2038 (incidentally, the year turn 65, but given this scenario do I really want to live that long?). As the CRFP argues, "no country can support debt at these levels without huge costs to its standard of living at a minimum and most likely a severe crisis."

So that's where we're at. Something's gotta give.

Tiresome and pointless hyper-partisan rhetoric aside, it will be interesting to see if the nation's elected officials - whether they be Democrat or Republican - will make the changes that are necessary to bring the nation's spending habits under control. However, it will be even more interesting to see if the American people are willing to accept those changes and make the sacrifices that would result.

Call my cynical, but I'll be pleasantly surprised if it happens.

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