by Jeff Reeves | June 6, 2011 12:04 am
The United States budget is broken, and broken far beyond fixing. We could cut out all the pork, slash entitlements by 30% and still not have enough money to pay the bills.
There are people who say such dire talk over the budget deficit is just scare tactics. Once the economy turns around, tax revenue will pick up in kind. True, but our profligate spending has long outstripped even the revenue generated in a strong economy. Based on the pre-recession trillion in tax income, we would still be $800 billion in the hole.
Here are the cold numbers: This year we will spend about $3.5 trillion, and take in nearly $2.2 trillion.
Consider the 2010 federal budget of $3.46 trillion is enough to buy a brand-new Chevy Volt for one out of every four Americans. Now consider the deficit alone is only slightly larger than the total GDP of Spain.
Digging into real numbers shows how truly ugly things are. But it’s awfully hard to make sense of numbers that large.
So I thought it would be interesting to explore how dysfunctional things are using the example of a family budget. All dollar amounts you’ll see here are real and based on the actual U.S. federal budget for 2010, divided by a factor of 10 million.
Let me show you what I mean by turning federal expenses into monthly bills:
America is a rich household that takes home $216,200 a year (estimated 2010 federal tax receipts). We are also a spendthrift household, throwing way $345,600 a year (estimated 2010 federal spending).
Those numbers alone should tell the tale pretty clearly. After all, how long could your family spend nearly 60% more than it earns before going bankrupt?
But let’s break it down further to show just how out of control things are, and see if we can find some ways to improve the family finances. Monthly, we take in about $18,016 for the bills. But our expenses break down along these lines.
Some quick math and you get a grand total of $28,797 a month in expenses – meaning we’re $10,781 short on the budget.
Clearly, this is not sustainable. We’ve been coming up short for years and have been simply charging the balance to our credit cards (deficit spending) … but it’s time to start fixing this mess before it gets beyond our control.
Let’s see what we can do.
The first step, logically, is to stop spending on “nice to have” stuff. No more landscaping or fancy gardens, no matter how nice the yard looks (Department of the Interior) – that saves $100 a month. Cancel that membership to the planetarium (NASA) – that saves $155 a month…
But unfortunately even killing every single item in the discretionary category only gets us halfway there – $5,500 a month in total. And practically, we can’t pull the plug on all discretionary spending. Nor should we.
Take the $604 a month we pay for our fancy car (Department of Transportation). We could spend our money more wisely, perhaps. But we can’t give up on all forms of transportation. We need to drive to the office or we’ll lose our job.
And there are some pennies that just aren’t worth pinching. The $58 a month for our membership to the local science museum (National Science Foundation) is small potatoes considering our $10,000 shortfall. And if you kill all “fun” expenses and lead an ascetic life, the stress from all the other cutbacks could be darn near unbearable.
Let’s be austere and assume we can slash a whopping 50% out of our discretionary spending. Our new total is $2,750 for this category – a savings of $2,750.
Of course, the biggest savings have to come from reducing the biggest expenses. But that’s going to be an awfully difficult task.
The $5,841 we spend each month on a plush retirement home for our aging parents (Social Security) is a big burden. It has to be reduced. But slashing that payout dramatically would put Mom and Dad in a place where they will be unhappy and abused. Finding the right balance is going to be hard.
That goes for our own comfort, too. Our great big house with an alarm system in a gated community must be sold thanks to a steep mortgage payment of $5,741(Defense Department). Sure, we could live without the on-call security officer. But do we want to live in a rundown apartment in a high-crime area with poor schools?
Then there are the medical bills. While some of the items making up $6,608 in expenses (Medicare & Medicaid) can be reduced, we can’t just stop taking our prescriptions or going to the doctor altogether. We suffer through more colds without Sudafed, but what happens if we come down with something serious – or have a serious accident?
These are all difficult choices that could have dangerous results if we cut too much. Though it’s a tall order, let’s say for the sake of argument we cut 30% from each item on this list. These major expenses have now dropped from $18,190 to $12,733 – a hefty savings of $5,457.
Unfortunately, this isn’t the end of our family’s monthly obligations. We gotta eat, right? There’s $3,466 more in mandatory expenses to cover.
Now add in the $1,641 (interest payments on our debts) we need each month just to pay the minimum balance on our credit card.
So is it time to find another job? Working the second shift at McDonald’s (raising taxes) could hurt our performance at the office and may do more harm than good. But there aren’t many other options.
We could continue to just charge the balance to the credit card even though it will only increase our monthly payments down the road. And of course, all credit cards have their limit.
We could go back to the drawing board and cut more. But it was hard enough finding a nursing home at a cost that’s 30% cheaper – can we really trust our parents to a cut-rate place? Do we really want to live on the other side of the tracks, or stop taking our heart medication?
As you can see, the math is impossible to work out. True, my numbers are arbitrary. But if you think you can pull off deeper cuts than a 30% reduction in Social Security and Medicare, by all means post your thoughts to the forum below – and use them to start a campaign for Congress.
The way I see it, the best hope we have is to cut as deeply as possible without undermining the safety of our nation and the security of our seniors. That won’t be enough to balance the budget, but it will buy us some time. After all, our monthly income has declined $4,166 since the go-go days before the recession ($500 billion, from about $2.7 trillion in 2007 to $2.2 trillion projected this year). Maybe if we can cut enough and can see enough of a rebound, things will meet in the middle.
But let’s face facts: As a nation we have been profligate for so long that it’s impossible to make a difference by cutting a few bucks here and there. And the economic outlook isn’t exactly rosy.
Pessimism, of course, doesn’t fix anything either. So the best we can do is to change our lifestyle. It won’t be easy – this will be a lifestyle without most of the small luxuries, with a budget a hair’s breadth from putting our health and safety at risk and could leave our aging parents pissed off at us until the day they die.
But that’s reality. And even those sacrifices may not be enough.
Source URL: http://investorplace.com/investorpolitics/us-federal-budget-spending-deficit/
Short URL: http://investorplace.com/?p=44234
Copyright ©2015 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.