U.S Budget Woes – Getting a grip on a hungry Beast


By Mitch Gurney

April 17, 2011

Following the announcement last week that a preliminary agreement had been reached to cut $38 billion ABC News reported that Obama’s Senior Advisor David Plouffee referred to the cuts as historic and draconian. I’m not sure in what context he meant his comments but I doubt that the size of the cuts is historic but the reasons for the stalemate were certainly historic and draconian in nature.

As the airways heat up over the budget debates with calls of cutting trillions and billions getting a mental grasp of the enormity of the problem can be challenging. Comprehending billions is difficult enough let alone trillions. I find it helpful putting this into context by thinking of it this way; it takes 1000 billion to make up a trillion. The annual spending budget deficit, which adds to the nation’s accumulating debt, is estimated to be $1.5 trillion for this year. That’s $1500 billion. The nation’s debt is currently $14.2 trillion. That’s $14,200 billion. This is before discussing interest on that debt.

During Bush II the nation’s debt increased by $6.1 trillion. But not all of this was his fault; the portion he added through deficit spending was $3.8 trillion ($3800 billion). The remainder $2.3 trillion ($2300 billion) was interest on the debt that he inherited. (See slides 10 & 11).


Using the interest that accrued during Bush II as our benchmark ($2.3 trillion, $2300 billion) any occupant of the White House has about $288 billion in interest accruing annually before drafting their first budget. As we can see the $38 billion in cuts will evaporate faster than a politician can break wind.

Obama has announced he wants to cut $4 trillion over twelve years. That’s $4000 billion and over twelve years is about $333 billion in annual cuts. With current deficits running about $1.5 trillion ($1500 billion) we still have $1167 billion left to cut somewhere if the goal is to balance the budget and stop piling on more debt. In addition he wants to increase taxes on the wealthy by $1 trillion over 12 years, thus raising revenue by about $84 billion per year. If these steps were undertaken there would still be deficit spending of about $1083 billion per year, or $1.1 trillion. ($1167 – $84 = $1083). Over the course of the 12 years interest on the debt will be about $3456 billion or about $3.4 trillion.

As part of the $4 trillion in cuts Obama wants to cut $400 billion in defense spending over 11 years (by 2023). This sounds impressive at first glance, but that’s only $36 billion per year. Let’s consider a more aggressive effort and say law makers cut $100 billion from defense spending per year. It would take ten’s years to save $1 trillion. Over those 11 years the interest on the debt would be about $3168 billion or about $3.1 trillion.

As we can see the task to ‘simply’ balance the budget will be daunting. But balancing the budget should be a priority if we are going to stop piling on more debt. By putting it into this context we should be better able to evaluate the worthiness of the various proposals as they are hashed out. With the plans offered so far politicians still need to get a grip and are merely tossing a tiny pebble at a hungry beast.

What remains unclear is what the goal is. In addition to Obama’s budget proposal Senator Paul Ryan has proposed cutting $4.4 trillion in 10 years. The problem with both of these proposals is neither balances the budget. Just announced is a gang of 6 Senators, 3 Democrats and 3 Republicans, that are developing a debt plan too, but no details have been announced yet.

The squabbling over the $38 billion in cuts demonstrates how dizzy our elected leaders can be as the nation was held hostage by a band of newly elected Tea Partiers over an issue that less than one percent of the population view as a problem and that represents less than .08% of the total $3.7 trillion budget. The Tea Party Republicans had initially wanted a provision in the bill to scrap about $300 million in grants allocated to Planned Parenthood. In the end this was shelved and the $38 billion finally agreed in cuts represents about 1% of the total budget. After all this drama and feuding it clearly had more to do with the “social conservatives” pushing their social agenda and little about actually resolving some serious financial issues.

Some of the comments made by our elected officials following the announcement of the $38 billion in cuts seem rather ridiculous:

Mr. Boehner said “…we fought to keep government spending down because it really will in fact help create a better environment for job creators in our country.”

“Programs people rely on will be cut back,” said Mr. Obama, who said Americans had to begin to live within their means. “Needed infrastructure projects will be delayed.”

“Both sides are working hard to reach the kind of resolution Americans desire,” said Senator Mitch McConnell of Kentucky.

Mr. Boehner asked, “When will the White House and when will Senate Democrats get serious about cutting spending?”

Mr. Boehner …added…“We’re not going to roll over and sell out the American people like has been done time and time again in Washington.”

“It’s been a grueling process. …It’s been very hard to arrive at this point,” Senate Democratic leader Harry Reid said, “Both sides have had to make tough choices.”

Surely these guys are joking, right? What part of America are they listening too? America needs help but that won’t be coming from the current batch of leaders in Washington. As I’ve said numerous times if we want real change we need to recycle 300 elected Congressman every 2 years choosing individuals that are independent of corporate purse strings and servitude. This gentleman writes an excellent article recommending this as well.

Mitch Gurney

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