The Federal Budget And Why The US Is In Trouble

[kyounge1956]

It's okay by me. I see a lot of huffing and puffing about how disastrous it will be unless we balance the federal budget, and occasionally I insert into a thread a plaintive request for some evidence that we can't just keep the deficits going forever. There seems to be unanimity that we can't, but none of you seems to be able to say exactly why.

I recently read The Predator State. The author's contention is that it is not only unnecessary but impossible for the US to have a balanced budget as long as other countries wish to hold dollars as the reserve currency. I'm not sure I completely understood this, and if he's right, I wonder if having the dollar as the world's reserve currency is good for the US if it means ever-increasing deficits and ever-increasing trade imbalance as he says.

I don't understand (if he's right) how the US can back away from the edge of the precipice. The author describes a scenario of an all-out effort to convert our economy to sustainability, drawing an analogy to the WW II war effort. I'm not sure whether he was just giving an example to show the type of change it would take to remedy our situation, or actually saying this is what we should do. Personally I don't think that's the answer. While I would love to see a sustainable US, there is not the unified desire to convert our economy that there was to defeat the Axis powers.

 

[Hamlet]

I believe Federal taxes are now at their lowest point since WWII.

I'm all for spending cuts, but its insane to talk about further tax cuts when we have a deficit of this magnitude.

Tell me where you want to cut $500 billion a year from the Federal budget first. We need to do that BEFORE we can even consider further tax cuts.

What's wrong with tax cuts? How about reducing the waste? Do you believe no matter how much our government wants to take from our paychecks, it's ok....just keep on raising the taxes? To what point...100%? Then what?

We need tax cuts. We need MORE tax cuts, and those need to be funded by CANCELING programs that have no business being paid for with Federal tax dollars.

 

[Purron]

To be fair, shouldn't the "extension" approved last year be Obama's tax cuts? after all, he's been President since January 2009

I'm OK with that if you are We'll see who takes the credit/blame in 2012.

 

[Westernskies]

I'm OK with that if you are We'll see who takes the credit/blame in 2012.

You're on!

 

[Alan]

Hindsight is always 20/20.

Why is it hindsight? Most, if not every president as far back as Nixon has publicly stated the need to stop our dependence on foreign oil, but regardless of the administration we fail to achieve that independence.

 

[sheehs1]

I take the view that "the function of spending" has little to do with "the generation of tax revenues". Two separate functions. One can overspend without regard to revenues (and they did !)

I have looked for information that could show what the current deficit would be had the Bush tax cuts not been implemented.
If anyone has a link for this, I'd certainly love to see it.

Over spending and lack of oversight are the twin elephants in the room.

Since Congress never points the finger at or blames themselves, they need a scape goat. Who or what has been the scape goat? The Bush tax cuts or course...

Put me in the camp of one who does not think it o.k for our government to continue over spending. 38 billion is a start..but it should not stop there.

Tax increases should be the last thing used to fix this. Why? Because it will not help our children or the generations behind us. It might actually make it worse for them. If the point is to reduce government....and government spending...then giving them more money potentially exacerbates (hides) the problem. Instead our government should be forced to think about every single little "million" dollar bucket it spends.
Notice I didn't say tax increases shouldn't be used...just that it should be one of the last options.

 

[NW-Bound]

Why is it hindsight? Most, if not every president as far back as Nixon has publicly stated the need to stop our dependence on foreign oil, but regardless of the administration we fail to achieve that independence.

Well, when Joe and Jane Blow have to park in a long line waiting for their turn to fill up their cars and to pay what Europeans have been paying all these years, they get really, really mad and demand the heads of oil executives, politicians, heck, any and everybody.

"Vroom, vroom"... It's the American way, don't cha know?

 

[ERD50]

I'm all for spending cuts, but its insane to talk about further tax cuts when we have a deficit of this magnitude.

But the OP did not put it in either/or conditions:

it is the equivalent of a family that spends 160K a year, but has an income of 100K a year.

It was put simply in terms of spending exceeding income. It seems to me some early posts started with one versus the other. Why not stick with the general case, spending exceeds income? It can be solved by one, the other, or both.

It appears to me that some posters with an agenda have put it in either/or terms. I'd prefer a reasoned discussion that keeps the thread open, but that's just me I guess.

Why is it hindsight? Most, if not every president as far back as Nixon has publicly stated the need to stop our dependence on foreign oil, but regardless of the administration we fail to achieve that independence.

Is independence on foreign oil really so important? If I think of this in the micro-economic sense, the ERD household is dependent on all sorts of 'foreign' (to our household) resources. We are not self-sufficient. We trade our resources ($ and/or labor) for other resources, many of which we could not do without. Yet, this does not seem like a problem at all, and it has been sustainable for as long as I've been alive, and I don't see an end to it, nor do I desire an end to it (I don't plan on learning how to do my own surgery, or build a car myself).

In fact (I think samclem has pointed this out before) , getting these resources at the lowest cost to us is exactly what we should do. Foreign oil must be cheaper than domestic oil, so why not buy it from the cheaper sources? It's the same make/buy decision I make with every single purchase (grow my own food, buy it?, etc).

And to be consistent, I'm against subsidies. So yes, oil needs to stand on its own for this to be meaningful. Let the oil companies buy their own protection, if that is what it takes to deliver 'foreign' oil.


-ERD50

 

[Midpack]

I have looked for information that could show what the current deficit would be had the Bush tax cuts not been implemented. If anyone has a link for this, I'd certainly love to see it.

According to this source Ezra Klein - Putting the $3.9 trillion extension of the Bush tax cuts in context, $3.9 trillion over the next 10 years, in the range of 30% of the 2010 deficit...

I hope you were both railing against the original Bush tax cuts and last year's extension of the Bush tax cuts because both actions vastly exacerbated the problem.

Significant to be sure but "vastly exacerbated" seems a little biased IMO.

 

[Westernskies]

Why is it hindsight? Most, if not every president as far back as Nixon has publicly stated the need to stop our dependence on foreign oil, but regardless of the administration we fail to achieve that independence.

I agree, but it's impossible to judge current affairs against what-if scenarios, since you'd be postulating against an unknown chain of subsequent events... for example what would the world look like today if we had stayed out of the Mideast and nuclear war erupted? What would our energy dependence quotient be today if we had been exploring and drilling for our own oil- offshore; in the Bakken; and the ANWR? What would our economy look today like if oil had gone to $500/barrel in 1980? There is no way to look back and accurately predict the outcome(s). Everyone can claim 20-20 hindsight, since there is no eye exam to measure it.

YMMV

 

[Independent]

I would say that one common topic on this forum is the concept of frugality and managing one's money closely.

I've also noticed a great divergence in views on various political topics.

So, here is a simple question:

Who here thinks that it is ok for our federal government to continue spending more money each year than they bring in?

.

The answer to the question is "nobody who posts here".

We had an earlier poll on the Simpson/Bowles deficit proposal. It got something like 90% support on this board. I expect that virtually every person who voted for it could find some aspect they would want to change, but they said they'd rather have a flawed package that closes the gap than hope for a perfect package down the road.

 

[Midpack]

Good start. How about another sacred cow, the DOT?

In fiscal 2010, the Fed spent $3,456B. Of that $847B (24.5%) was Defense and a relatively trivial $92B (2.7%) was Transportation.

SocSec was $756B (22%), Medicare/Medicaid was $821B (24%) and Interest was $196B (6%).

Same period revenue was $2,163B for a deficit of $1,294B. It's going take a lot more than one "sacred cow" to solve our deficit issues without dramatically raising taxes. And I'd much prefer less spending to higher taxes.

This info is all readily available online.

And yes, the latest budget cutting battle was very much ado about nothing. Wonder why the media never pointed that out?

 

[sheehs1]

According to this source Ezra Klein - Putting the $3.9 trillion extension of the Bush tax cuts in context, $3.9 trillion over the next 10 years, in the range of 30% of the 2010 deficit...

Significant to be sure but "vastly exacerbated" seems a little biased IMO.

Thanks Midpack...I've seen this projection from this point forward. I suppose I was more interested in....how much the cuts actually attributed to the current deficit over the "past" 15 years or so. Meaning...I would like to see how much overspending there was...that can be tracked to nothing ...but just plain long overspending in the past.

 

[Midpack]

Thanks Midpack...I've seen this projection from this point forward. I suppose I was more interested in....how much the cuts actually attributed to the current [-]deficit[/-] debt over the "past" 15 years or so. Meaning...I would like to see how much overspending there was...that can be tracked to nothing ...but just plain long overspending in the past.

As you know, no direct answer is possible, but FWIW The Tax Foundation - How Much Did the Bush Tax Cuts Cost in Forgone Revenue?

 

[GregLee]

I have looked for information that could show what the current deficit would be had the Bush tax cuts not been implemented.

It seems you can expect only a theoretical answer, since it will be argued that the cuts prevented the economy shrinking any more than it did and hence maximized tax revenues.

 

[rescueme]

none of you seems to be able to say exactly why.

Apparently not to your satisfaction.

So on a personal basis, you spend more than you make, and are satisfied to just pay the interest on your outstanding balance?

Of course you won't live forever. In most cases, when you die, your accumulated (e.g. CC debt) is cancelled.

But what about a sovereign nation that is responsible for its debt? More specifically, its taxpayers of many generations are responsible for that debt.

Do you think that is OK?

BTW, I don't. I'll pay my own way; it's not up to the next generation (or others, if I have no childern) to assume "my" debts.

 

[Independent]

I never followed government spending much and hence don't much about about the budget process. I always thought the first thing I would eliminate in the budget would be foreign aid; however, a friend told me that foreign aid was a money making proposition. The government doesn't really give "them" cash, rather it's giving goods and services provided by American business and industry, thereby creating work for our people. Anybody got a handle on this topic? I'd be interested in knowing how foreign aid really works.

The important fact is that foreign aid is so small that it's an afterthought in terms of the budget. In 2010 it accounted for 0.8% of total spending.

You can get a good view of the budget here: Budget of the United States Government: Historical Tables Fiscal Year 2012

To find foreign aid, open table 3.2 and look at item numbers 151 and 152.

If we want to balance the budget by cutting spending, we need to cut Medicare and Defense and (eventually) Social Security.

 

[GregLee]

So on a personal basis, you spend more than you make, and are satisfied to just pay the interest on your outstanding balance?

No, I don't owe any money at all, save for the current month's CC bills. Do you really think this is relevant?

 

[NW-Bound]

If we want to balance the budget by cutting spending, we need to cut Medicare and Defense and (eventually) Social Security.

Thank You!

Doing anything else is like beating around the bush, like a homeowner who is in arrears on his mortgage, refusing to move out of his McMansion thinking he could remain solvent by giving up his Starbucks coffee.

 

[Midpack]

If we want to balance the budget by cutting spending, we need to cut Medicare and Defense and (eventually) Social Security.

Amen. From my earlier post (2010 actual spending):

24.5%	Defense
22%	Soc Sec
24%	Medicare/caid
6%	Interest
23.5%	EVERYTHING ELSE

Our deficit is 37.5% of of spending!!!

 

[Independent]

As you know, no direct answer is possible, but FWIW The Tax Foundation - How Much Did the Bush Tax Cuts Cost in Forgone Revenue?

Thanks, good source. I get somewhere in the vicinity of $2 trillion, give or take a half trillion. That's a good chunk of the total debt held by the public of about $5 trillion before the housing bubble popped.

One of the questions is how much dynamic offset we should make to the static cost. When Bush was president (2006) the Treasury tried to estimate that. We all know that any such estimate is very sensitive to input assumptions, but I'd guess that the Treasury in 2006 was unlikely to intentionally bias their estimates to make the dynamic effect small.

They didn't end up with an explicit number, but if you read the report, it seems to be that the dynamic cost was more than 90% of the static cost.

http://www.treasury.gov/press-cente...s/treasurydynamicanalysisreporjjuly252006.pdf

 

[rescueme]

No, I don't owe any money at all, save for the current month's CC bills. Do you really think this is relevant?

I think it is.

If the federal (or any) government paid their "bills" in the same manner, there would be no problem.

However, they are not. The money has to come from somebody (you, me, in reduction of services and possible increases in taxes) or from current and future generations.

My question to you. How do you get the federal government to act in the same fiscal manner as you do - that is managing your debt, without defaulting, or the reduction of the value of a dollar (e.g. printing money - monetize the debt) or pushing the payments to somebody (or some generation) else?

 

[FinanceDude]

I hope you were both railing against the original Bush tax cuts and last year's extension of the Bush tax cuts because both actions vastly exacerbated the problem.

The Stimulus plan that gave special interest groups money also exacerbated the problem.......

 

[Westernskies]

In fiscal 2010, the Fed spent $3,456B. Of that $847B (24.5%) was Defense and a relatively trivial $92B (2.7%) was Transportation.

SocSec was $756B (

Same period revenue was $2,163B for a deficit of $1,294B.

So yes, the latest budget cutting battle was very much ado about nothing...

IMO, the problem is that, too many people (John and Jane Q and politicos alike) , these sacred cows are "trivial" to the budget. (only a few BILLION each... ) The mindset is that these "trivial" numbers are OK, since they individually represent only a small % of the total budget. So, we continue to spend those billions we don't need and add new sacred cows each year. DOE, TSA, etc...do we really need all the government we are paying for? We need to change that mindset, and get back to basic financial responsibility, and quit spending money we don't have- even "trivial" amounts...quit rationalizing fiscal irresponsibility in small doses.

 

[chinaco]

Taxes will be going up. If nothing else, that GWB tax break will expire.