Federal Budget Blues

Balancing a budget is never easy. The immediate gratification of being able to buy something we cannot afford is difficult for most of us to ignore. This is true whether we're struggling to manage a family budget of four or the federal budget of the United States. However, when one is attempting to manage the federal budget of the United States, the thought process of our current president and his administration are there for us to see and read. I visited www.whitehouse.gov/omb/budget for some insights and found more information than I could process in one sitting. (Thirty second sound bites are very popular for this reason, I suppose.)

For example, I clicked on "Historical Tables" and downloaded a 368 page PDF. On pages 25-27 of this document is Table 1.1--Summary of Receipts, Outlays, and Surpluses or Deficits. Let us, for the moment, suspend the belief that these numbers can be manipulated and take them at face value. From 1998 until 2001, we had four balanced budgets. From 2002 until the present, we haven't been so fortunate. The deficit for 2009 was 1,412,688 (in millions of dollars). This represents almost a 1,000,000 increase (again in millions of dollars) over the 2008 deficit.

In the Fiscal Year 2013 Budget of the U.S. Government, a 256 page document I downloaded from www.budget.gov/budget, the administration explains, from their point of view, why the federal budget spiraled out of control during the George W Bush years:

"For too long, Washington has spent money without identifying a way to pay for it. Indeed, the cost of the 2001 and 2003 tax cuts as well as the Medicare prescription drug benefit passed in the last administration contributed significantly to turning the surpluses of the 1990s into the record deficits of the following decade. The financial crisis and recession exacerbated our fiscal situation as revenue decreased and automatic Government outlays increased to counter the recession and cushion its impact."

Table 1.1 documents the decrease in revenue after the two Bush tax cuts as well as the decrease in revenue after the financial crisis. However, George W Bush was not the first president to cut tax rates. Presidents Kennedy and Reagan implemented tax cuts as well; revenues reacted differently than they did this time. For example, revenue grew during each year of the Kennedy administration. This tells me that the reasons behind the growth or the decline in revenue are more complex than the above quote allows.

President Obama writes that "this Budget will cut the deficit by $4 trillion over the next decade. This will put the country on a course to a level of deficits below 3 percent of GDP by the end of the decade, and will also allow us to stabilize the Federal debt relative to the size of the economy."

It should be noted that Table 1.2, which immediately follows Table 1.1 on page 28 of the above-mentioned document, is the Summary of Receipts, Outlays, and Surpluses or Deficits--As Percentages of GDP. The projections for 2017 achieve the Obama goal of a federal deficit that is only 3% of GDP, assuming all the assumptions are met. But wait. The administration maintains that the actual economic picture is better than some of the economic assumptions that were made at the time the budget was written. For example, the unemployment rate is slightly lower.

However, I must point out that this budget, at best, is a deficit reduction plan, not a spending reduction plan. Outlays in this budget grow year by year without exception until they reach a high of 4,531,723 (in millions of dollars) in 2017. An example of the deficit/spending reduction philosophy by this administration is expressed in the following quote:

"All told, reductions in the growth of defense spending will save $487 billion over the next 10 years. In addition, the end of our military activities in Iraq and the wind-down of operations in Afghanistan will mean that the country will spend 24 percent less on overseas contingency operations (OCO) this year than it did last year, saving $30 billion. I am also proposing a multi-year cap on OCO spending so that we fully realize the dividends of this change in policy."

This is from the Budget Message of the President. When he proposes to cut the growth in spending, he's not cutting spending. However, when he proposes to cut OCO, he is cutting spending. (At least he's cutting something. And to be fair, there are spending cuts in many categories throughout the budget proposal. Total spending goes up every year in spite of this.)

Let us hope that we don't involve ourselves in any wars over the next few years. And let's hope that if some version of this budget is passed, it will reduce spending and not merely finance new purchases that we cannot afford.