Sunday, January 6, 2013

The Case For Cutting Spending

I'm going to take a shot at trying to explain to those of you who support the democrats why we need to cut federal government spending.

I understand why the democratic politicians support the policies that they do.  I understand why friendly big businesses support these policies.  I understand why those of you who live on food stamps, unemployment, etc support the democrats.  But it is to those of you who have jobs and support yourselves, and your families, through your hard work that I mean to address this post to.

Our current levels of federal government spending are unsustainable.  Among other things, we risk the government going bankrupt.

Forget, for a moment, your thoughts on the economy, gay rights, abortion, religion in schools, etc, we can talk about those later. 

Let's look at our federal government's budget.

And never mind about what you think is good about raising or lowering taxes on certain people, let's just look at the actual numbers and understand that we are not even close to balancing the budget.

The government's official historical budget numbers can be found in table 1 here.

(I am going to use 2011 numbers because they are recent and I have this handy budget info-graphic from 2011.)

If you, or I, spend more than we make, then we run up our debt, and eventually go bankrupt.

If a business spends more than it makes, then it runs up its debt and eventually goes bankrupt.

The government is a bit different because it can print money, and can borrow money at better rates, and more easily than any private party.  But it is still true that the government is irresponsible if its revenues are not more than its expenditures.   Deficit spending can only last for so long.  Eventually we will need to pay for it.

First the numbers (table 1):

2011 revenues: $2,303,466,000,000
2011 expenditures: $3,603,061,000,000
2011 budget deficit: $1,326,948,000,000

In 2011 the U.S. federal government spent $1.3 trillion dollars more than it got in revenues.  This is unacceptable, irresponsible, and unsustainable.

There are three ways to fix an unbalanced budget (and let's forget, for a moment, the good and bad things that go along with these options):
  1. Increase revenue
  2. Decrease expenditures
  3. Both
The budget needs to be balanced, and these are our options.

Raising taxes is one way to accomplish option 1.  But we cannot raise taxes enough to cover our current budget deficits.

In 2011 $1.1 trillion dollars was raised by the federal government in income taxes.  If everyone's income taxes paid were doubled, then it would still not cover our budget deficit.

$1.1 trillion more from doubled taxes paid < $1.3 trillion deficit

In 2011 $1.5 trillion dollars was raised by the federal government from all non social security revenue sources.  If all, non-social security, taxes were doubled, it would then cover our budget deficit.

$1.5 trillion more from doubled taxes paid > $1.3 trillion deficit

The January 1st "fiscal cliff" deal only raised taxes on the rich by increasing rates from 35% to 39.6%.   In order to balance our budget, the tax rate on the rich would need to be 70%, and everyone else's tax rate would also need to be doubled.

The "fiscal cliff" deal also increased spending by $4 trillion over ten years.  If we assume that that increase occurs uniformly over the next ten years, then that is $400 billion in more spending each year.  If we at that to the deficit, we get $1.5 trillion as the new deficit. Doubling all federal taxes, except social security taxes, would only just barely cover our new expected debt.

$1.5 trillion more from doubled taxes paid = $1.5 trillion deficit

If you want to balance our budget with only raising taxes, then understand that everyone will need to pay double what we currently pay in all taxes.

Claiming that raising taxes on the rich will accomplish anything is sheer nonsense.  If the tax rate on only the rich was doubled, it would not cover our deficit.  Doubling taxes on the rich will not cover our budget deficit.

All, except social security, of everyone's taxes would need to be doubled in order to cover our current budget deficit.

Many spending cuts need to take place if we want to balance the budget without doubling all of our taxes.

More things to consider:
  • 2011 Social Security numbers: $819 billion in revenue, $725 billion in spending; This is currently balanced but the "baby boomers" are retiring which will mean fewer workers and less government revenue and more retirees and more government spending.  This means a more unbalanced budget.
  • We have only just begun paying for Obamacare.  Once it is fully implemented we will have, at least, another $500-800 billion in spending to pay for.  Forget about if you think that it is good, or if you will be helped by it, for a moment.  We cannot afford what we pay for now.  How will we be able to pay for more? This means a more unbalanced budget.
Our current levels of federal government spending are not responsible, rational, or sustainable.  We need to cut spending. Even if we increase taxes on everyone we need to cut large amounts of federal spending.

If you, or I, don't pay our bills, then whoever we owe money to will not have the money to pay for his/ her food.  There is no such thing as a free lunch. 

At some point the bills will come due.

I implore you to consider the numbers; consider that taxes paid would need to double to cover current levels of government spending.

Both political parties are at fault, both need to change.  Stop supporting the politicians who continue to spend more than make.  We cannot continue spending like this forever.


  1. Could not agree more. They try to preach personal fiscal responsibility yet are riding the US to financial ruin. So much waste. Cappy has some great posts on the subject.

  2. You forgot the biggest issue. Entitlements (Social Security, Medicare, Medicate, Government Pensions, ...). Their size dwarfs (by 6-10x) the amount of official government debt. I hate to say it but there is no way out but default (either by inflation, explicit default, failure to pay entitlements or some combination thereof).

    1. I did mention SS. But my goal here was to lay out the overall point that we have a $1.3 trillion budget deficit.

  3. I think one of the problems is that people vaguely understand the part below, but do not understand that it dilutes your money and significantly makes you much poorer.

    "The government is a bit different because it can print money, and can borrow money at better rates, and more easily than any private party."

    Who knows how much pain people will need before they see the truth and THEN do something about it. It amazes me how bad it is for young people in Spain and Greece, but it seems that they have not hit that pain threshold.


    1. Its not good for those of us who are young in America either.

      I think that most people should take the time to understand ho money works, how inflation works, etc.

      This gives me an idea for a post.

    2. Agreed that it is bad for young people here, but it is going to get worse. America abolished physical slavery, but debt slavery is dramatically on the rise (college debt, extraction of wealth). A hat tip to Karl Denniger on the red pill of finance.