Budget Deficit: What's $2.9 Trillion Between Friends?

$2.9 trillion -- that's the budget Bush has submitted to Congress.

It's $239 billion short -- a little less than the tax cuts Bush insists on keeping. That $239B is $241B less than the $470B interest we pay on our $8,698,540,152,659.45 National Debt, up from $5.4T when Bush took office. On September 27th of 2000 President Clinton announced a record budget surplus of $230B -- topping the prior year's surplus by over $100B and a great turn around from the $290B deficit he was handed his first year in office.

"The key to fiscal discipline is maintaining these results year after year. We need to put our priorities in order," Clinton said. He vetoed tax cuts demanded by the Republican Congress that year...

Just 5 months later, on February 22nd, 2001 -- newly elected President Bush said: "We thought long and hard about the right number," he said of the $1.6 trillion tax cut proposal. "We think it's just right."

"I have a reasonable and balanced budget," Bush said. "It funds priorities, and my administration has no higher priority than education." He said the budget would "honor the commitments to America's senior citizens," including support for Medicare and Social Security.

"Our budget is fiscally responsible. If enacted, it will reduced the deficit by an unprecedented amount over the next four years."

Well here we are just 6 years later, half a decade late and $3.2T short.

Was our suffering under the Clinton regime really that onerous? Was the burden of our taxes really crushing the life out of the economy (which was already in debt) to the point where we had to take a second mortgage on the country?

Anyway, I'm not here to point fingers -- mainly because anyone who needs to see where the finger gets pointed is already looking so far the wrong way that I doubt they really want the answer. So let's just take a quick look at the budget...

Receipts ($2.662 trillion):

• Individual Income Taxes: $1.246T
• Social Security, Medicare: $927B
• Corporate Income Taxes: $315B
• Excise Taxes: $68B
• Customs/Duties: $29B
• Estate Taxes: $26B
• Miscellaneous: $51B

Outlays ($2.901 Trillion):

• Medicare and Medicaid: $919B
• Social Security: $608B [includes $209B interest on $4T funds "borrowed" from SS (no lock-box!)]
• National Defense: $603B
• Non-Defense Spending: $511B
• Interest: $261B

What do most people do when they have a $239B deficit?

Some spend less, some try to earn more -- rare is the man who will both spend more ($716.5B in new defense spending over the next 20 months) and decides to earn less (pushing for extensions of the tax cuts beyond the scheduled 2010 expiration).

Our GDP is projected to be $14.5 trillion in 2007 -- can't we just act like mature adults and pay 2% of it as a deficit reduction tax? That may seem like a lot now, but Europe balances their books with a VAT (value added tax) and it's a heck of a lot higher than 2%!

I'm not going to pick apart what we should and shouldn't be spending money on; the fact that the Defense Department gets an extra $49B while Education is cut $1.5B speaks for itself (no point in teaching them more than they need to know to point a gun I guess), and we will be hearing no end of debate over the matter during the month.

I'm just saying that an economy that generates $250B a week should be able to at least be mature enough to make a sacrifice... If there's no room left to cut, then we all have to reach 2% into our pockets and pay a little more. If you object to that, object to the spending, not the fiscally responsible act of trying to balance a budget!

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Comments

[Barry Gitarts:]

The problem with this post is its all armchair economics and lacks a fundamental understanding of economics, such as the power of incentives, lower taxes create higher tax revenue because they provide the incentive for business. If higher taxes were the anwser, try raising them to 100% and see how little tax revenue the government takes in.

2007 Feb 06 01:50 PM

[Will Hayes:]

Dear Phil,

According to you numbers, our government spends over 1.5 Trillion dollars a year on entitlements. That is also the primary area where Democrats have consistently blocked ANY slowing in spending growth, much less spending cuts, with howls of "you can't hurt the poor to benefit the rich."

Ironically, social security is a direct tax on the poor, while it very directly to lower low income wages. The nearly 500 billion dollars wew spend a year on servicing our debt is also an "inflation tax" on the poor.

We will never cut spending(Clinton just slowed spending growth, never cut a penny except from defense and intelligence budgets) unless entitlements are on the table. Democrats run under the pretense that they will maintain us our entitlements. They do this on the backs of the poor. You do the math.

P.S. In my lifetime, I never remember the Democrats complaining that even a Republican bill should spend less. They voted for ever penny of spending under Bush. In fact, those were the only bills that flew through congress. Whores abound.

2007 May 11 11:29 AM

[Philip Davis:]

I wish I could agree that it was so simple Will but it's not. They are called entitlements because people are ENTITLED to them. You can't put SS on the table because some poor jerk worked 50 years in a factory and gave 7% of his wages to a retirement program based on the promise he would get back his money with interest when he retires (but only if he lives long enough).

Had that person had the choice of taking $2,000 a year for 50 year and putting it in the bank at 5%, they would have (at just 5%) $462,565.59 to retire on. Since the interest on $460K is $23,000 a year, it is reasonable to assume that that person had the right to expect a reasonable ability to retire on all the money he entrusted the government with. Notice I'm not even getting into the promise the governement made to match the payments...

You need to take off your Bush colored glasses and see what a scam is being perpetrated on the American people. The Republicans have raped and pillaged the SS accounts, breaking open the "lock box" to spend $3.5T dollars more than we made during the past 6 years.

You're right about SS being a tax on the poor since it stops at $62,000 and the easiest way to fix it is to remove the collection cap while keeping the payment cap. Boom - double the intake. We'll even let you buy a shiny new tank with all the extra money. 8-)

As an investor you should realize that any good company "just slows spending growth" while income growth rises - that's the way you run a healthy company. What we've been left with after electing the "CEO-in-Chief" is a very sick company that does have to cut back spending because our growth has been crippled by overspending and excess debt.

2007 May 19 06:47 AM