Feb 15, 2011

Let's talk honestly about the budget.

Money is the lifeblood of our country. Very little happens without money, and our government accomplishes nothing without our tax dollars. If not for the electoral and fiscal involvement of the American populace, our schools stay closed, our streets are not patrolled, we have no ambulances, our roads are left to decay and our society as we know it completely ceases to exist. Businesses would fail without state and federal tax dollars going to building and maintaining infrastructure that as a whole is not profitiable. This is the very essence of politics – we choose those with talent and ideas among us to take the collected effort of society and direct it to better that society. There are many functions that the government operates more efficiently than the private sector would be able to.

A quick word on revenue. 45% of the US revenue comes from individual income taxes. An additional 34% comes from social security and medicare payroll taxes. Corporations themselves pay just 14% of our federal revenue, with a tax rate that ranges from 15% to 39% - however, so many loopholes and incentives are available to corporations that they generally end up paying very little in taxes. Capital gains, gift, estate, gas, cigarette, alcohol and other taxes are part of the remaining 7% of Federal receipts.

The GOP's bright idea about stimulating the free market into dealing with the financial crisis by cutting taxes on capital gains, for the rich and on corporations will have a negative effect on our revenue, but little positive effect on our economy – in fact, it is based on a complete misunderstanding of where the strength of our economy actually comes from – not the top class of investors and hoarders, but the middle class of investors and, most importantly, consumers. The playbook for the last 50 years of the Republican Party has been to slash revenues by either cutting income taxes for the highest echelons of earners or offering new tax loopholes for major corporations, thus forcing a budget deficit. When the deficit starts to balloon, Republicans in legislatures and Congress start to run on fiscal responsibility. After being elected as deficit hawks, they cut the programs that they oppose for ideological reasons, leaving government spending that benefits their traditional supporters in defense, security, resource extraction and energy.

From their behavior, we can posit that the GOP is not interested in smaller, more efficient government, but instead a government that benefits Republicans and their supporters. Otherwise, at least one of the many Republican Administrations in power since 1960 would have successfully reduced the size of government.

Let us return to the matter at hand and talk about the budget process – how a budget gets passed, and how the government spends your money – because although we all voluntarily give it to the government, that money, as well as the government, is ours. In the beginning the president proposes a budget to Congress asking for certain amounts of money for certain federal programs. The president himself does not come up with the specific figures cited in the budget proposal, instead suggested figures are given to the Oval Office by federal agencies – these are bundled to a plan which is given to the House of Representatives in early February.

Still with me? This stuff can get a little dry. The budget is then handed from the House leadership to budget committees, whose subcommittees then create resolutions setting spending limits for appropriations. After passing subcommittee and the budget committee as a whole, the resolutions go to appropriation committees, who then break the resolutions down to their subcommittees, which then allocate specific amounts to federal programs and agencies through appropriation bills. These bills have to pass through the subcommittees and committees before being brought before the House as a whole, generally bundled into a large package, for passage. In the process of moving from subcommittee to committee and through the larger chamber, compromises are made. It is in this part of the process that earmarks (more on those later) are attached to bills to motivate otherwise reluctant congressmen to vote for them.

The House leadership then hands the passed resolutions on to the Senate, where much of the process is repeated as the Senate considers the bills. More compromises are made, and after the Senate passes their version of bills they go to a conference committee formed between the leadership of both chambers and the appropriate committees where the resolutions originated. Further compromises are made, the leadership returns to the chamber with the new version of the bill, and if passed, they are sent to the president’s desk to be passed or vetoed. If vetoes, Congress has the ability to override with a 2/3rds majority vote.

There are several parts of the budget – and Congress does not actually get to vote on more than 50% of the budget because it is mandatory spending. 42% of federal spending goes to what are deemed mandatory entitlements, evenly divided between social security benefits and Medicaid/Medicare benefits. Social Security currently takes up 21% of our budget and is expected to grow as the baby-boomer generation retires. Currently, the Social Security program is unsustainable. It would be paid for by our Social Security payroll taxes several years into the future if the government had not borrowed out of the ‘Social Security Trust Fund’ created by a surplus of those payroll taxes. To make the program solvent and sustainable, a 1.4% tax increase or a 15% reduction in benefits will be needed.

Other mandatory appropriations make up 11% of our budget – this money goes to the everyday function of our government. The lights are kept on in the Capitol building through this portion of our budget. Members of Congress and the president also receive their salaries out of this 11%. When a party or group in the government forces a 'government shutdown', this money ceases to be spent and the government can fail to function.

Defense spending makes up 20% of our budget. One fifth of our budget goes to keeping our bases open, training our soldiers, and investing in new equipment for them. The Pentagon’s staff as well as our active and reserve duty soldiers are paid through this portion of our budget. This 20% also pays for security and upkeep for the United States’ nuclear arsenal. This portion of the budget does not, however, include monthly and quarterly emergency appropriations for foreign conflicts (more on that later). It is worth noting that many of these bases and units are vestigial remains of a wasteful Cold War military disposition and an ineffective campaign in the Middle East.

Discretionary spending is a significant portion of our budget – 18% of federal spending goes to infrastructure, support for state programs, ongoing non-mandatory federal programs, and earmarks. Earmarks as a portion of our federal budget make up 1-2% of federal spending. Republicans claim that cutting earmarks will help alleviate our national debt, however this is simply ludicrous. Furthermore, earmarks help grease the wheels of democracy – many important spending resolutions would be met with impasse if it were not for compromises made by members of Congress through amending each others’ bills with earmarks.

The other 9% of federal budgetary spending is lost to interest on our debt, which makes up 9% of the total budget.

The portion of spending I just discussed is the on-budget spending that is found in federal law, debated publicly in Congress, and is available for every American person to see online the actual passed budget is available for every American to see already, as have all federal budgets since 1997 by order of Bill Clinton. You can see for yourself right here: http://www.gpoaccess.gov/usbudget/index.html

A real problem we now face is shadow spending. There are two important forms of shadow-spending that I would like to discuss. The first are emergency appropriations, which Congress has been passing an awful lot of lately (the financial sector rescue, if we choose to pass it (and we should), will be one). Emergency appropriations are just that – a release of funds from either the Social Security ‘Trust Fund’ or borrowed from foreign or domestic lenders for emergency purposes. An emergency appropriation measure was made after Hurricane Katrina to help the cleanup and relief effort after that. More concerning, however, is the use of emergency appropriations to fund foreign conflicts. As of today most of the funding for the actions in Iraq and Afghanistan has occurred off-budget through these measures. These activities have added hundreds of billions of dollars to our deficits and debt.

Believe it or not, tax cuts, tax rebates, stimulus packages, and tax incentives are another form of shadow spending. These represent lost or missing revenue which increase our budget deficit and increase our national debt. When we offer incentives to corporations we lose a portion of federal revenues and force individual working taxpayers to shoulder more of the burden. When we offer ‘stimulus packages’ to ourselves we are putting ourselves further in the red. The Bush tax cuts, if continued in this manner, will cost us more than $1.8 trillion over the next 10 years. Republican talking points claim that cutting taxes will eventually increase revenue and alleviate debt – but this is certainly untrue. Revenue would have increased without these useless tax cuts which were weighted toward the ultra rich and proposed in the name of boosting our economy. If our economy has improved due to these tax cuts, it is certainly hard to see where. Basically we have put ourselves over a trillion dollars more in debt for no discernable reason.

Spending increases are another issue often raised by the GOP. Under Clinton, the budget increased by $300 billion, from $1.6 trillion to $1.9 trillion. Under Bush and the GOP, the budget has increased by $1.2 trillon to a fiscal year 2008 budget of $3.1 trillion. Under Clinton, our national debt as a percentage of our GDP (a measure of the productivity of the American economy) decreased for the first time since the Carter administration. Under Bush, our debt skyrocketed and the financial system collapsed. The crisis was ended and rebuilding has begun under President Obama, but at a very high cost. By embracing severe cuts in spending now, we put that recovery at risk, however such cuts should be forthcoming.

Here is the bottom line: Unless we make significant cuts in entitlements and/or defense spending, or we raise taxes, the United States will go bankrupt. Economists estimate at current tax rates and spending levels it will take 75 years for our economy to grow large enough to bring the budget back into the black. Something has to give, and either way you look at it, its going to end up being us. It is an existential issue, and we have to think deeply about what kind of country this is going to be in the future, what programs we can do with out and which ones will be necessary for a sustainable future for the generations to come.

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