Tags: revenue | expense | budget | spending

The Debt: Fiddling While Rome Burns

By    |   Friday, 13 Dec 2013 06:56 AM

When the president and Congress caused a partial shutdown of the federal government and nearly defaulted on some of America's national debt, a congressional committee was tasked to negotiate a budget deal by Dec. 13. The goal was avoiding another showdown early next year. The result is a very small deal that may lead to the federal government having its first approved budget in more than five years.

Basically, it will keep everything the same but trim some of the mandatory cuts on Jan. 1 (sequester number two) and pay for them by increasing user fees.

For Republicans, avoiding another budget train wreck will keep the focus on the troubled Obamacare. They also keep most of the spending cuts and hold the line on raising taxes.

For Democrats, some cuts in spending are avoided and some revenue is raised.

And for Congress, any budget deal, no matter how small, could be one tiny step into restoring American confidence in that institution.

But a small deal does very little to change fiscal policy, because the how we tax and spend won't change much. Our current course does very little to trim the massive annual budget deficit and continues to rack up trillions of dollars in national debt. And unless changes are made, this will not end well.

Imagine if the federal government were a household making $21,700 a year but spending $38,200 a year. To make ends meet, it has to add $16,500 to credit card debt, which already has an outstanding balance of $142,710.

Further, of the $38,200 of spending, $24,450 is for contractual obligations (mandatory spending) like mortgage, car payments and taxes, $11,450 is for non-contractual expenses (discretionary spending) like food, entertainment and clothes and the balance of $2,300 is interest on credit card debt. Current government revenues don't even cover mandatory spending. The problem is obvious: you can't spend more than you take in without it eventually becoming a problem.

Without any deal, the Jan. 1 sequester would have cut $1,090 from the household budget example. With a deal, the cut is reduced by $63 next year while being offset by user fees over the next 10 years, which are projected to bring in $85 total. Gladly pay you Tuesday for a hamburger today.

The federal government has a further problem. Mandatory spending, which includes Medicare, Medicaid, Social Security and other entitlements (like welfare), is set to aggressively grow as more baby boomers, Obamacare and a sluggish economy swell enrollment, while revenue is expected to slow, as the remaining working population gets smaller.

The only way the national debt gets paid down is when the federal government runs a surplus. The solutions are to either significantly raise revenue or reduce expenses, neither which are being discussed. Even a balanced budget, which at least does not add to the debt, is decades away.

The chances are the highest in a long time that both the president and Congress may actually agree on a budget. But aside from avoiding the cycle of budget crisis, it does little to make a real difference.

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When the president and Congress caused a partial shutdown of the federal government and nearly defaulted on some of America's national debt, a congressional committee was tasked to negotiate a budget deal by Dec. 13. The goal was avoiding another showdown early next year.
revenue,expense,budget,spending
512
2013-56-13
Friday, 13 Dec 2013 06:56 AM
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