Thursday, March 28, 2013

A Government Which Is Spending $3 While Collecting Only $2 Can't Continue Doing That Forever

The government knows best big spending gang has a big problem on its hands. Of course, that means that We the People have one, too.

And that's due to one very simple reason. There is no government money. There is only money taken from We the People which is used by the government to fund whatever it chooses to fund.

And the government knows best gang has a long list of projects to fund OPM style: such as military and defense spending, funding teachers pensions, paying the salaries of government employees and contractors, food stamps, Pell grants, student loans, K-12 education funding, Social Security payments, Medicare payments, Medicaid payments, interest on government debt, unemployment compensation, post office subsidies, Solyndra type "investments," and on and on and on.

And the really big problem now concerns how the priorities are to be established for future government spending. We're spending $3 but only taking in $2. Something's gotta give. But what? That's the question needing an answer.

To keep it simple, we'll separate the government's spending extravaganza into four distinct buckets: (1) defense; (2) entitlements and automatic mandatory spending; (3) interest on government debt; and (4) all other, aka discretionary spending.

The #1 defense spending and the #2 automatic entitlements spending issues are protected sacred cows of the Republicans and the Democrats, respectively.  And #3, the required interest payments on government debt, are obligatory as well. That only leaves the government knows best gang to wrestle with #4, or the last bucket of discretionary, or all other kinds of government spending.

But their problem is one of simple math.

Simply stated, if we're spending $3 while bringing in $2 in receipts, we need to reduce our spending by $1 in order to bring the budget into balance. {NOTE: Either that or raise revenues by $1, of course, but that's another story for another time.}

Accordingly, it would make sense to reduce each of the three buckets somewhat to raise the needed $1. But if we decide not to touch buckets #1 (defense) and (#2 entitlements), and we can't touch #3 (interest on debt), that leaves only bucket #4 (discretionary spending).

Hence, to bring the budget into balance under those conditions where #1, #2 and #3 are untouchables, we would probably have to eliminate #4 entirely.

Of course, that's not going to happen, but that's the problem that's been created by our feckless politicians -- a truly insoluble one unless and until something gives in a big way.

Liberals Find Themselves in Spending Trap has the details behind the dilemma:

"The Washington budget dynamic now settling in ought to be a liberal's nightmare.

The budget action . . . which locked in for the rest of the year the spending levels set in the much-ballyhooed sequester, establishes a pretty simple pattern: Squeeze money out of the military, but also squeeze money out of all varieties of domestic social programs the federal government runs, including those that protect the environment, help feed poor children and give rent assistance to needy families.

Meanwhile, the even bigger entitlement programs that really drive the deficit—Medicare, Social Security and Medicaid—are left nearly untouched.

One way to think about this pattern is that it leaves wealthy retirees living in gated golf-course communities with benefits that are unscathed, while Head Start programs for kids, or research by scientists in university laboratories, for that matter, take a hit.

That notion ought to give shivers to those who like programs in which the government does something other than just write checks. Yet the emergence of this pattern also is, in many ways, the fault of those on the left, who have long resisted every effort to rein in the growth of the entitlement spending that is now crowding out the other programs they love.

The logical evolution of this cycle is that Washington ultimately would become nothing but a machine that funds the military and dispenses money to government beneficiaries—and pays investors who are owed interest payments on the national debt. That would represent, among other things, a giant transfer of wealth from younger Americans to older Americans.

And guess what? This trend has been taking shape for years, and the sequester has only thrown it into sharper relief. It's becoming a budgetary fact of life, and it will become more pronounced.

According to data from the Congressional Budget Office, the money spent on nonmilitary discretionary programs—all those domestic programs for which Congress has to approve funding each year—declined to 4% of the nation's gross domestic product last year from 5.2% in 1980.

Meanwhile, the money spent on mandatory programs—those in which the government makes payments automatically—grew to 14.4% of GDP last year from 10.7% in 1980. . . .

Thus, the automatic, across-the-board spending cuts in the sequestration, mindless and distorted as they may be, are simply casting a light on the future of government spending patterns unless something changes.

Still, (Democratic House Representative Chris Van Hollen of Maryland) says that over time it will be particularly important to find ways to slow the growth in costs of Medicare to ease the squeeze on other programs. He acknowledges, though, that the two parties have vastly different ideas on how to find those Medicare savings.

Mr. Van Hollen argues that Democrats have done more to hold down Medicare costs than is usually acknowledged. But they do it mostly by squeezing payments to health providers, while Republicans want to do it by finding ways to squeeze beneficiaries to change their behavior.

The disconnect is significant. Still, one way or the other, the only way to preserve other government programs is to agree on a plan to change the arc of entitlement spending. Liberals, more than most, ought to want that."

Summing Up

We can't responsibly cut defense spending by nearly enough to make a substantial difference in our efforts to bring fiscal sanity to Washington, so we'll skip that one. So what do we do?

Do we keep 'helping' the oldsters by keeping entitlements as they are and stop helping the young and the poor, or do we help the young and the poor to the exclusion of helping oldsters?

Or do we raise taxes across the board by a total of 50% to get from $2 to $3?

Or do we unleash the private sector and not raise taxes, while agreeing to properly address the issue of entitlements spending over time?

The simple fact is that we are getting older as a society and there's nothing we can do about the aging of the baby boomers who are now retiring in record numbers.

To me the answer is obvious. We need to address #1, #2 and #4 as a whole as well as individually. Otherwise #3, interest on the government's debt, will grow out of control.

I hope the answer is equally obvious to others as well.

The progressive liberal agenda of raising taxes on the rich and reducing defense spending, while leaving everything else alone, simply won't work to solve our problems.

It won't even make a serious dent in them. The math doesn't work.

That's my take.

Thanks. Bob.

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