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Posted by on Jul 28, 2008 in At TMV, Economy, Politics | 27 comments

Budget Deficit Approaches Half a Trillion … Per Year

The Bush Administration today announced a projected budget deficit of $ 490 billion for Fiscal Year 2009 (October 1, 2008 to September 30, 2009).

Just to put that in proper perspective it is $490,000,000,000 or about $ 1,650 per person for the single budget year alone. This will bring the national debt to nearly $ 10 trillion dollars which pans out to $ 10,000,000,000,000 or in excess of $ 32,000 per person.

Sadly the major response to this news has been finger pointing and political gamesmanship with the Democrats slamming Bush while Republicans point the finger back blaming excessive social spending. But partisan fighting is not going to solve the problem. You might score points by attacking an opponent as a ‘tax and spend liberal’ or condemn them for ‘wasting money in Iraq’ but you are not going to resolve the problem.

The difficulties in the current budget reflect years of mismanagement. During the 1990’s we thought we were balancing the budget but what we were really doing is basing it on unrealistic economic performance.  In reality the blame can be laid on both parties. Decades of runaway spending and irresponsible tax cuts and stimulus packages have done their damage. We need to take a harsh and realistic new look at the whole process rather than raising partisan rhetoric.

For those who would lay the blame on Iraq for example, the total current spending for operations in Iraq is estimated at about $ 10 billion a month (per Barack Obama) which works out to $ 120 billion a year or less that 25% of the total debt for the year. The stimulus package alone cost at least $ 170 billion so it is more to blame for the debt than Iraq (though I think they are of equal value to the economy, none).

As I discussed in a previous posting relating to the California State budget, what we need here is some real leadership on the part of both political parties. The $ 490 billion dollar deficit represents nearly 20% of total income or 17% of total spending (based on a projected income of $ 2.5 trillion and projected spending of $ 3 trillion). It is clear that you are not going to balance the budget through tax increases or spending cuts alone. The numbers simply won’t allow it.

So what is the solution ?

Well I am hardly an expert on the budget and until someone chooses to elect me to the House or appoint me to the Senate I’m not sure I want to work that hard on the process but I do know it will require some major changes.

We are already looking at the likelyhood of reducing and/or eliminating our operations in Iraq over the next couple of years so that in theory will give us about 20-25% of the cuts we need, though I suspect the number will come in a little lower than this. The point we sometimes forget is that even if these troops were not in Iraq most of them would be somewhere doing something for the military so I’d cut 20 billion off for those costs.

So we’ve saved $ 100 out of the $ 500 billion needed. In theory we will save another $ 100-$ 150 billion in the future since we won’t have the stimulus package every year but we may also face declining revenues so you can’t count on that.

A second area we will need to look at is the Medicare/Medicaid/Social Security trifecta. These 3 items alone represented 41% of the total spending in FY 2007. We may need to consider things like raising retirement age or increasing the amount of the SS and Medicare taxes. I know it’s not popular but we can’t spend what we do not have.

Finally in terms of spending we need to look at reducing spending in any other areas we can find, though cutting pork spending in Washington is kind of like trying to raise the Titanic with tweezers.

Democrats at this point are probably raging and Republicans celebrating the idea of reducing spending, but that won’t last long because we need to look at tax increases as well. Even if you factor in the reduction of most of the costs of Iraq, wipe out the cost of the stimulus package and work to trim other spending you are sill only about half way there and the other part needs to come from the income side of the equation.

I’ve already discussed the idea of raising Medicare or Social Security taxes, which would help resolve problems there but we also need to look at rolling back some of the 2001/02 tax cuts. If we are expecting to resolve the problem you simply have to get the money from somewhere. I would however suggest that the load be spread out over all taxpayers. A shared burden for a shared benefit so to speak.

Obviously these ideas are very rough and require a lot of fleshing out. Perhaps some of our political ‘leaders’ can start to work on this but somehow I doubt that they will.

If they do then I’ll be the first to offer praise for their efforts.

But if they keep up with the old partisan wrangling, maybe it’s time for all of us to get together and form that long discussed Third Party and toss all the idiots out.

Addendum: Just to make it clear I do blame President Bush and the 2001-2007 GOP Congress for seriously exacerbating the problem. He and the GOP leaders were irresponsible to pass major tax cuts and increase spending. However there were many many Democrats who also supported the cuts and the spending.

As has been pointed out, the balanced budgets of the 1990’s were predicated, in part, on shifting the numbers around and using the social security surplus to falsely balance things.

The time has passed for partisan finger pointing and the time has come for real work to solve the problem.

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