How Can We Save Our Debt-Swamped Government?
The United States is $10.2 trillion in debt. Like countless Americans, our government has spent beyond its means and needs help getting back on its feet. We recently received a panicked email from White House Budget Director Jim Nussle...
Help!!!!
I can't stop spending! I've tried the whole "control your spending" thing, but it just isn't working. I'm $10 trillion in debt and I only make $2.5 trillion per year, and now this Bernanke jerk put me on the hook another $1.5 trillion! My boss is breathing down my neck and China is threatening to repossess all my stuff.
Please, what can I do?
Calm down, Jim. You too can escape from debt by following a few basic budgeting principles. Let's take at look the government's budget and see if can't benefit from some personal finance wisdom.
Take the scale down a couple thousand notches and the United States Government is like a divorced father working to make ends meet. The poor guy makes about $30,000 per year and grapples with a seemingly inescapable debt of $90,000. Instead of paying down the debt's principle, he spends slightly beyond his means, about $32,880 each year, ensuring that that his coffers won't overflow anytime soon.
Each year, he sits down and writes out a detailed five-year budget that always puts him in the black towards the end. He promises to start paying down the debt then, but in practice, the extra cash never materializes. It's not that he doesn't have good intentions. His spending is just too unwieldy.
He has two types of expenditures: personal and court mandated. His personal expenses are the basics. He pays for rent and food, and the occasional beer at the neighborhood bar. Nothing too extravagant. It's becoming tougher to justify those little luxuries as his other expenses have grown. By order of the court, he must pay his ex-wife significant alimony, plus child-support for their growing kid. He could save money by eating out less or watching the game from home instead of heading to the bar for a pint, but those unpopular choices wouldn't make anybody happy.
These are the pretty much the choices facing the U.S. government, but on a drastically larger scale.
How Much Do We Owe?
The U.S. debt is huge. The interest payments alone cost more than $400 billion. China is our Master Card and Japan is our Visa. As a society, we owe them $2 trillion, plus interest. And every single day, we borrow another $1.5 billion.
What's All This I Hear About A Deficit? Is That The Debt?
No. The deficit is our yearly contribution to the debt. When politicians talk about slashing the deficit, they mean that *this year* we will still add to the national debt, but maybe not as much as we thought. Presidents habitually propose "balanced" budgets that slash deficits year after year, ending with a balanced budget after five years. Ignoring the fact that Presidential terms are four years, those proposals mean that the government will continue to add to the debt for every year except the last, when we will contribute nothing to debt, but won't do anything to reduce it either.
When the government spends less than it receives, we have a surplus. This is rare. Surpluses come with the same choices as holiday bonuses. You can blow them on iPods (or F-22 Raptors,) or pay off your student loans and credit card bills (or Social Security.)
Why Is The Planet's Wealthiest Nation In Debt?
Just like our hypothetical divorced father, the U.S. has two types of expenses: discretionary and mandatory. Discretionary spending accounts for one third of our budget and funds all the those nice little things that we want, but aren't required to fund. This encompasses most agencies you know about, like the Pentagon and the Departments of Agriculture, Education, State, Labor, Justice, Transportation, Commerce, and Homeland Security. All of it is nice, but if Congress wanted, it could quickly swing the legislative mace and kill off the FBI and the Navy.
Discretionary spending is also the source of those pork barrel projects that get Senator McCain in such a huff. Technically, pork barrel projects benefit the residents of one Congressional district—think of that spiffy new park down the street—rather than further any national aim. In a budget of nearly $3 trillion, they cost around $18 billion.
The vast majority of the federal budget is eaten up by the mandatory spending that funds our social safety net. The big entitlements are Social Security, Medicare, and Medicaid. The cost of entitlements is driven by the number of eligible citizens, rather than the annual Congressional appropriations process. To our divorced father, they are the court-ordered child support payments.
Congress has the ability to tweak entitlement program eligibility, or scrap them altogether, but politicians don't like futzing with our entitlements because it's one of the easiest ways to get fired.
Don't Mention The War!
You may have noticed, we're at war. The wars in Iraq and Afghanistan add to our national debt, but not to our deficit. How? Emergency spending. Congress doesn't have a rainy day fund like most responsible families. When the United States' car breaks or we have an unexpected health scare, Congress waives its few existing budget rules and appropriates emergency funds, adding to the debt like any normal expense. For those keeping track, the wars have added almost half a trillion dollars to the debt.
Even in peacetime the Pentagon guzzles nearly half a trillion dollars annually for its operating budget. The defense budget is so large that it was one of the only points of reference for the recent $700 billion bailout.
Ok, Debt Is Bad. How Do We Reduce It?
If our hypothetical divorced father can reduce his debt, so can the government.
Keep A Budget: Well at least this one is covered. We have a budget and we know exactly where our money goes. See, here's the President posing with his newfangled "E-Budget." To make your own slightly less fangled version, read our post on How To Build Your Own Budget .
Acknowledge The Problem: Hmm, well, we kinda have this one covered. Maybe you remember that Perot fellow, the one with the ears and the oil who loved talking about our debt? He got it. Some of our politicians get it, but Oh! New Program! WANT!
-sigh-
Stop Digging: This means balanced budgets. The government won't ever pay off its massive debt unless it stops sending more than it takes in year after year. Balanced budgets are only the first step. We really need more money.
Make Small Cutbacks: Um, yeah. Whole think tanks devote their time to finding "small cutbacks" that might save a little cash. If the government really was a divorced father, we'd point him to our post: 5 Expenses You Can't Afford If You Have Credit Card Debt.
Start An Emergency Fund: Lockbox, anyone? This was one of the original ideas behind Social Security and Medicare: start a separate fund with a separate funding stream, and keep the big bad mess away from our annual operating budget. It didn't take Congress long, those naughty little rascals, to figure out that the big box labeled "COOKIES - DO NOT TOUCH" was filled with yummy, yummy cookies, on which they've been feasting ever since. Now the trust funds, as the President likes to point out, are filled with IOUs. Whoops! You, however, are more disciplined than Congress, and have no excuse for failing to fund a rainy day fund.
Snowball: You have an edge over the government in that you can start a debt snowball, paying off your smallest balances first and then applying your newfound cash to payoff the larger balances. The government doesn't have "small" and "large" balances. They simply owe tons and tons of money. Revel in your superiority by reading our post: Use Snowball Method Spreadsheet To Pay Off Debts
Make More Money: This means raising taxes, the government's nearly exclusive source of income. Everyone, even people who want more government programs, hates paying taxes. There's nothing pleasant about it. But it's the only way the government can raise cash. We need to pay for all those nifty services like the Do Not Call List and the Pentagon.
Spend Less: This means cutting services, like that Do Not Call List and Pentagon thing we like so much. Rarely can we agree on what to fund, let alone what to cut. In a budget of $3 trillion, canceling the government's cable service doesn't amount to much. The big dollar savings come from staunching the future cost of entitlements or scaling back defense spending, but good luck getting the needed votes in Congress.
But Isn't Some Debt Ok?
Some debt is the natural byproduct of a healthy society that reinvests in its future. Just as student loans are investments to boost future earnings potential, the government funds projects that can improve society and the economy. We can all agree that the interstate system is rather spiffy.
Economists bicker over how much debt relative to income is healthy for the economy, but most everyone accepts that a reasonable amount of debt—however much that may be—is alright, much in the same way that carrying a mortgage isn't fundamentally bad.
Public policy is the constant, painfully entertaining struggle to provide the right services at the right tax levels. When you realize that cutting spending means fewer police officers or raising the retirement age, and that making more money means raising your taxes, you begin to understand why we have a $10 trillion debt.
What Can You Do To Reduce The Debt?
The most important thing you can do is to keep paying your taxes. If you are feeling especially charitable, you can make a donation directly to the treasury. Make your check payable to the Bureau of the Public Debt, and in the memo section, write: "Gift to reduce the Debt Held by the Public." Mail your check to:
Attn: Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
Budget of the United States Government [Government Printing Office]
(Photo: Matt McGee)
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Comments:
@doctor_cos:
Agreed!
However, Marijuana has already been decriminalized in many localities (New York, for example) and even legalized (California) but it still remains illegal on a federal level.
If the Federal goverment could legalize marijuana, and let the states decide whether to allow (and tax) marijuana, we'd see a nice increase in tax revenue.
Do you think anyone will actually make a donation?
First, many people think that their contribution would be so insignificant. Also, people on a whole a more charitable when they get to chose where their money goes, not when it is already decided to them by the government.
@doctor_cos: Just as long as it they aren't under the influence of it in public, I don't mind them doing it in their own homes, but I don't want them to do something out in public that endangers others.
10.2 Trillion... BEFORE the bailout/"rescue" package.
We need to stop deficit spending on non-infrastructure items. Just as a home and a car ( within reason ) can be a great investment, the government should be using the deficit to improve the US infrastructure and not for random pork and tax breaks.
Looking at McCain and Obama, both are looking to defict spend to meet their goals. The scary thing is that at the end of the day Obama will deficit spend *less* than McCain. ( according to the congressional budget office studying their plans ).
We should put congress in a freezer and only take them out in emergencies.
@Dooley: Yeah, I think he was referring to de-criminalizing cultivation and sale, not just possession for personal use.
It immediate harm is less than alcohol, it's less addictive than tobacco, and it's easy to grow. It's a federal policy that is laughable on it's face.
@johnarlington: I hate it when any party has a majority of both houses and the executive branch. I like a deadlocked government much more.
Zero based budgeting wouldn't hurt, either.
For some reason the phrase "We had to destroy the village in order to save it" comes to mind. The two morons running for president were involved in help creating the problem thanks to being in the Senate. No matter which one of the corrupt politicians wins, we all lose.
Whoa! Bad example-- The post office isn't paid for by taxes!
Except for Free Services offered to blind people (mandated by congress), the Postal Service is entirely self sufficient through postage revenue. That's why postage rates are going up- the post office has one of the nation's biggest vehicle fleets and the price of gas directly affects costs.
Interestingly, the post office generally has a three year cost window between rate increases- increases are designed to permit a modest profit the first year, a break-even year, and then a modest loss year before raising rates (if necessary).
Kill "Star Wars". SDI has never passed a true, non-cheating test, and even if it were able to, counter-measures can be cheaply brought online that would overwhelm the system.
Whatever nuclear threat we face SDI won't help.
It's corporate welfare of the most cynical kind: give us billions or you're in favor of nuclear apocalypse.
Sure, it's only $30,000,000,000. But tens of billions here, and there, and you're talking about some decent spare change.
I'd bet there are a dozen more gold-plated Pentagon programs of similar cost with that could be similarly axed without impacting our national security.
@easy2panic: Looks like people do, according to the web site. $2m this year so far.
Looks like it's tax-deductible too (for those who itemize). Plus that doesn't include the intangibles, like bragging rights round the water cooler at work next time you want to tell someone to put his money where his mouth is.
But I thought that debt = money, so doesn't it make sense that the world's wealthiest nation also has the most debt?
@snowmoon: And it's a federal policy that wastes my tax money via enforcement and housing the dangerous "criminals" who are caught. So there's more money to help out.
See, this just gets better and better.
@doctor_cos: Let's expand gambling too. That fixes everything!
/except that all the revenues are swallowed up by the societal ills it causes
//and it's a massive tax on the poor
///oh wait, it's "just a game".
Good article, guys. 10.2 Trillion sounds like an insane amount of money, until you realize that we bring in trillions a year that could be used to pay that debt. Great analogy with the "divorced father".
2.5 Trillion, and that's not enough? I was thinking about this on the way home today, oddly enough. That's almost 5 million dollars a minute. 80,000 dollars a second. A freaking second and they've spent more than I make in a year! We're so hosed.
Keep A Budget: We may have a budget, but not an honest one. Frequently items are declared to be "off budget": Future Social Seciruty costs, Iraq war spending, Katrina rebuilding boondoggles, and lots of other unplanned spending. If my furnace breaks, can I claim the cost of putting the new one is "off budget"? No. Neither should they.
Acknowledge The Problem: We're only half way there. Most politicians I've heard (with few exceptions such as Ron Paul) only "get" half of it. Republicans blame excess Democratic spending. Democrats blame Repblican tax cuts and adding spending programs without funding sources. Each is only half right - they need to also accept blame for their party.
Stop Digging: Congress needs to fully acknowledge the problem and top telling ignorant voters they can get a free lunch. Voters need to understand that hearing "no" to adding health care benefits or establishing a new spending program isn't "uncaring" or "heartless".
Start An Emergency Fund: Its covered - The US supposedly still owns many tons of gold in Ft. Knox (Notwithsanding Internet rumors that say it is empty....)
Make More Money: Higher taxes = more money??? Perhaps not! Mathematically there exists some tax rate that will produce maximum tax income. Many economists say we are already there. Almost all agree we are very close to it. Once we reach that point, raising taxes rates much further will reduce the incentive for productive work and choke the free flow of capital, lowering the tax base and actually leading to LOWER overall tax collections.
Robert B. Reich ("a secretary of labor under President Bill Clinton [...] a professor at the University of California, Berkeley [and] the author of 'Supercapitalism'") argues in favor of some deficit spending in a recent Op-Ed piece in The New York Times.
@Hyman Decent: Also, if you owe people money, those folks will be less likely to, say, kill you and lose their chance of getting it back.
@goodstuffmaynard: kind of. if we were investing the debt, then yes. but we're spending it on war and entitlements, which makes it bad debt.
the article differentiates between good national debt and bad, and then brings up the question of how much debt is acceptable in relation to our income.
and then you could say that we're mostly the wealthiest nation because of all that money we get from debt. we import far more value than we export, and we pay for a lot of that extra wealth with debt.
It says in the article that "[t]he interest payments alone cost more than $400 billion."
So if we're running at a 400 billion annual deficit does that technically mean we have a balanced budget? Or in order to have a balanced budget we would ned to slash our costs by 800 billion to account for that 400 billion...I don't know, it's a headache-inducing nightmare.
There is a huge problem with this argument. It assumes that money is a limited item, like any other commodity. Money is an act of law and it's creation is used to facilitate thew workings of society. There is no logical reason the United States should have to borrow funds from anywhere to do what it needs. If the United States decides that war, infrastructure, education, etc. are worth pursuing, then it can create the funds necessary to proceed with these actions. The US Gov can then regulate the money supply by increasing or decreasing tax rates to control inflation.
Allowing private interests to create money out of nothing is what got us into our current, and many other messes. The best way to get out of debt is to reform monetary policy. Please visit monetary.org for more information if you're curious about these issues.
@Lars:
While in a sense money is a creation of the government (that's why it's called fiat money) and people's trust in it, printing too much just to solve a national emergency can (and often does) lead to runaway inflation. Runaway inflation has been the fall of more than one government in the history of the world, and it seems to be what may happen to Zimbabwe-- they had something like 18 million percent inflation a few months ago. Unless the U.S. wants the same fate, printing money whenever a problem arises doesn't seem like a good idea, even if it were quickly re-regulated and decreased.
Cheers!
@TPK: Yes, because there has never been a peaceful society in all of history and if we don't load ourselves to the gills with bigger and better weaponry we can never survive and fear fear fear FUD FUD FUD are you scared enough yet hand over all your money!!!
'S called a "sales pitch", I believe, and it's about as true as the rest of 'em.
@InfiniTrent:
I don't buy that tax on the poor crap. A fool and his money are lucky to get together in the first place. It's a tax on the ignorant, not the poor.
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Too bad that no one listens to Ron Paul, he's been saying the same thing for over 20 years.. Big Government is full of loss.
@Dooley: It's a little misleading to say that marijuana has been decriminalized in New York. Certain small amounts of marijuana used in private (emphasis added) can result in nothing more than, essentially, a ticket, but these rules only apply to small amounts of the stuff used privately. Not all possession of marijuana is not a crime.
Also, as for the article, there are more advantages to the debt than the author makes clear. Well...at least it should be said that the deficit is just a tool that the government can use to influence economic events, just like the tax rate. The notion that "debt" is bad, just because it is debt is unfair. Debt has to be looked at as a tool of influence and nothing more.
@easy2panic: I have been stoned for about 15 years. You don't need to worry about being in danger, actually you are safer if you are surrounded by people that are stoned because we are usually very relaxed, thoughtful and ready to assist in times of need =:-'>
Watch this interesting movie (about a 1/3 of the way it talks about the Federal Reserve Bank)
http://video.google.com/videoplay?docid=-594683847743189197&hl=en
Did you know it was a private company? Neither did I.
There are more than two options
There are TEN people running for president and the average ignorant taxpayer only know of two of these people.
for example Bob Barr is a man running in the libertarian party he believes in less goverment, lower taxes and greater individual freedom, I'd look into it.
If the Iraq/Afghanistan wars were budgeted, our debt would be less than $9 trillion. If the bailout were budgeted, our debt would be under $8 trillion ($630 billion in US currency was released by the Fed before the bailout was even voted on). Outside of those debts, that still means that the Bush Administration is responsible for doubling the national debt since he took office.
Clinton increased the debt by 50%.
Reagan/Bush41 increased the debt by 400% (to be fair, most of that was Reagan). I guess taking that into consideration, Bush didn't do such a bad job...
Still, how did President Bush do this? His tax breaks and the deregulation of Wall Street. If Obama wins, all he has to do is roll back the Bush tax cuts and put a leash on Wall Street. With a Democrat-controlled Congress, it's a done deal. It will take years to fix the problem, but with Obama's tax cuts for the 95% of Americans making less than $250K, I don't think the majority of citizens will be bitching.
So, before you ask yourself if there is a difference between McCain and Obama. Look at the national debt graph for GOP vs. Dems.
@EarlNowak: I was just going to log in to make the same point. I think a correction is in order -- the post office is not funded by taxes.
@inspiron: And there's another piece of ignorance: Bob Barr is a Republican running under another party's flag. At this point the entire Libertarian party has been co-opted by delusional idiots and angry former Republicans.
Many people would be libertarians if they had any basic understanding of political philosophy. Sadly, the Libertarian party does not really represent these beliefs and in my opinion even negatively affects the development of libertarian beliefs.
It kills me that, with this level of national debt, anyone (*cough* McCain *cough*) is out there saying we pay too much in taxes. We pay very low taxes compared to many other developed countries. The government provides services -- whether you agree with that spending or not -- that need to be funded. Yes, it's annoying that a portion of the budget goes to weird pork barrel projects, and to me it's even more annoying that we are hemorrhaging money at the "war on terror" and bailouts of irresponsible businesses. But it would be better to actually pay for those things than continually "buy on credit", as this article points out.
I wonder sometimes if GW Bush, having grown up rich, just doesn't get having to control spending. It seems like, for him, there was always more money available. I would suspect it's the same with McCain; although he talks like he came from regular folk and only came into money with his current wife, I've heard his mother described as an "oil heiress". Anyway, that's all speculation.
There shouldn't even be a debate over who is or isn't going to raise taxes. It's not feasible, as far as I can tell, to cut the amount from the budget that needs to be cut, although some have pointed out programs like SDI that would help, and McCain seems to think he'll phase out Social Security. We as a nation will just need to pay more taxes, and I think Obama's plan of rolling back the frankly ridiculous tax breaks given to the richest bastards in the country is a good start.
@SinisterMatt: It's what crippled Germany after the Great War, and then they had the rise of a demagogue.
@lincolnparadox: I read that Bush is the only President in history to start a war and cut taxes. That's what pushed it over the edge. My generation is fucked.
I'm very satisfied with our nation's present level of national debt. It's true that our national debt has multiplied many times over, but that's because the size of our economy (and thus our ability to pay it) has increased even further. Back during WWII, our ratio of publicly held debt to GDP was at 120% - now it's at less than 70%. By comparison, Japan's is currently at 170%.
Further, though our relative debt has been increasing in recent years, the amount of our taxes that is used to pay interest on the debt has been decreasing. Ten years ago 14% of our taxes went to paying that interest, whereas now it's at less than 10%. With investors fleeing to the safety of our treasury bonds, I would expect those interest payments to become even more affordable.
Obviously America needs more money. I recommend America get another job. I hear Wal-Mart is hiring.
...Ask our richer, European 'friends' to travel here and buy more of our stuff. Has Krispy Kreme reached London yet...?
And as a life-long resident/student/worker/tax-payer of the state of California, I am always surprised how little cash we actually have. Cali alone has Hollywood, Silicon Valley (my 'hood), agriculture, and tons of cheap labor, which may or may not be a good thing, depending on how you view the whole illegal immigration issue. Yet, we're always strapped for cash, our public schools a total shame, etc.
A decent (read: clean, safe, and functioning), studio apartment in San Francisco goes for at least $1000 a month (and that's the cheap, run-down end), but most employers gasp when you ask for more than just $12 per hour.
None of it, from the state all the way up to the Federal government, adds up. Someone is clearly skimming off the top while another holds their fist tighter than the skin on a snare drum. Meanwhile, harsh reality continues for millions of people, and all as people around the world view America as the land where "streets are paved with gold." Things are so twisted these days.
I would advise you to look at the national debt at the start of the Regan era to now. This problem has been orcestrated by the Republicans. They have intentianly persued a policy of cutting taxes to the rich and spending more and more on the military and other projects of little social value. Bush has done this in spades. He has privitised much of the military to the benifit of his pals, and the expense of the taxpayers. Privitising does not save money, it merly shifts it to the pockets of privet individuals. We should return to a true progresive income tax, for both individuals and corps. Ending the occupation of Iraq and cutting spending on the vast pentagon budget. Remember, government is not the problem, it's the Republicans.
@EarlNowak: So is it not-for-profit? The strategy with the stamps is interesting, and it seems to show an intention of breaking even, which is probably meant to be their entire strategy.
If they were to be really badly managed and approach bankruptcy, would the government have a legal obligation to bail them out? I'd assume it'd happen either way, as the USPS is such a major institution and the politician who killed it by inaction would be unpopular.
@Trai_Dep: The same could probably also be said of the Ospry, which has been in development for 25 years with 20 billion dollars, and has become a shadow of the proposed design, with much less firepower. What's worse, it has cost 37 (IIRC) lives in the test runs.
Of course, while the aircraft is dangerous and more limited than projected, I can see it serving some useful purpose at this point, so there isn't much harm now that the research is done. Star Wars seems to have a bigger problem, in that it fights a threat ineffectively, and will cost tons to maintain even once the research and development is done. And the R&D may never be done, as newer missiles/nuclear bombers will be built to outsmart it, making this an expensive cat and mouse game, with a very fat, very slow cat.
@goodstuffmaynard: I'm guessing "wealth" is based on GDP. Are there any countries in the black? Surely there must be, otherwise, wouldn't humanity be using more resources than it actually has? I get confused easily.
De-criminalize marijuana and tax it.
Done.