Tax, Spend, tax, spend, so often criticisms of the Federal government fall into one of those broad categories. I reckon that just about everyone wants to cut spending. Well at least cut the spending that is not benefitting them. Likewise it’s rare to see “raise my taxes” campaigns.
Last September I wrote about the Federal Budget process and the concept of funding via Continuing Resolutions. Links to overviews of the budget process, appropriations process, and the nuances regarding continuing resolutions are available in this piece.
Now the Federal Budget is easy as pie, well a pie chart maybe which ain’t as good as a made from scratch homemade apple pie. Actually those pie charts ain’t that simple easy whether they simply represent a visible guide on paper or implemented into the real world where paper statistics become people who do suffer and feel real pain. It’s one thing to make decisions sitting behind a desk and isolated from the effects, and it’s a different ballgame making those decisions in real time out in the midst of the action.
For FY 2015, the Federal government will spend approximately $3.9 trillion which is roughly 21 percent of the GDP. That spending is broken down into 3 broad categories, and here are projected spending levels:
- Mandatory Spending: 65 percent
- Discretionary Spending: 29 percent
- Interest Payment on Debt: 6 percent
Mandatory spending consists of earned benefit programs which are determined by eligibility rules and not decided through the appropriations process. Social Security is an example of mandatory spending.
Discretionary spending consists of government expenditures which go through the Congressional appropriations process each year. While it is true that Congress has not passed a budget for quite some time, it is inaccurate to say that no budget exists. The last budget passed remains in effect, and for the most part the different Congresses have chosen to use the previously set amounts as guides. (Yes there are variables such as sequestration and such, but the above is merely a broad summary of the topic).
Interest payments on debts should be self-explanatory. One important concept to remember, however, is that the “Debt Ceiling” involves money already spent. Think about it as things that have been bought on credit. It has nothing to do with current or future spending, so these arguments to not raise the debt ceiling essentially mean that we refuse to pay for things that have already been consumed. It’s reneging on a debt. The real problem lost in the partisan rhetoric is that either more revenue is needed or less spending has to occur. Personally I think the wisest approach is a combination of increasing revenue and cutting spending.
For example the revenue lost from the issuing of tax breaks exceeds the amount of money which will be spent for discretionary programs. Officially tax breaks are called tax expenditures because they are no different from spending.
The classic argument is that tax breaks spur other economic activities which benefit the country and population. Many times that is true. The problem, however, is that once enacted these tax breaks or expenditures are permanent unless an expiration date exists within the break itself. Unlike discretionary spending with its annual appropriations process, a tax break does not expire unless it states so in the break or until a Congress passes a law ending that provision.
Here’s the issue. Over the years the number and cost of these tax expenditures have increased. Some of these breaks no longer spur the other economic activities. Some proved ineffective from the start. Still, they remain part of our tax code.
Folks we can argue the merits of different discretionary funding all we want. We can talk about shifting the eligibility requirements for earned benefit programs such as Social Security or social welfare programs such as SNAP until we are blue in the face. The sad fact is that we can be on completely opposite ends of the spectrum about what should be done concerning the above, but we could find tax expenditures that just don’t make sense to either of us.
Of course that doesn’t solve our differences. It does, however, buy us time to work on settling our differences without the added urgency of being driven further and further down the hole.
Yes, you or I can walk in rural America and find someone who refuses to try and help themselves through what we might believe is honest work. We can walk in urban America and find certain people doing the same. I believe most of us would also find people who truly need assistance or help which hopefully create an opportunity to become more self-sufficient. It’s a difficult balance, and our perspectives along with our respective paths make our observations different.
I understand that. I get that. Still, we are talking about drops of water in a 5 gallon bucket. Yes those drops add up, and a small leak will drain a bucket faster than one really anticipates. The problem as I view it, however, is that while those drops are dripping from the bottom and we are rushing to stop that leak we are spilling much more water over the top.
If I’m toting a leaking bucket of water across the field and can reach the other side with ¾ of the water leaving a “snail trail” of droplets in the dust, I accomplish more than if I tried running with that bucket and reached my destination with only ½ while a puddle has developed somewhere along the path.
Now the smart thing would be for me to find some alternative. I could plug the leaks, find another bucket, or start stretching out some hoses and tapping into one of the well heads. The size of the leaks, distance, and other factors will determine the most prudent step. Even knowing the smart thing, it might not be the correct thing because I only have a limited window to get water to where it is needed. It might make more sense to get 75 percent at a time or 50 percent at a time. Unless I’m out there, I can’t say which avenue would be the best at that point and place.
I’m just saying that when I try to stop a leak, I look for the source of that leak. Then I try to stop that leak from the place losing the most down to the place losing the least.
I’m just saying that you can have the strongest tow chain available, but the strength of all those links won’t help you pull out of the bog if one link is weak or damaged.
I’m just saying that we need to make reviewing the tax code line by line a priority. We’re already losing so much with the tax breaks, expenditures, loopholes, that stopping those leaks would result in the ability to actually lower tax rates and still receive more revenue.
Would you like to see what it would take to allocate where your tax dollars go? It would require making some tradeoffs, and tools are available for you to try your hand at the task here.
I highly recommend the National Priorities Project as a source for a host of Federal Budget information.