Understanding the Federal Budget
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Over the past forty years there has been a
concerted effort on the part of the
Conservative Movement to defund the federal government. (ATR
Heritage
Germanis
Frank) Many people have been convinced by this movement that we can,
somehow, solve our fiscal problems by cutting the federal budget even
further than we have over the past thirty-five years and, at the same time,
provide an effective national defense, maintain our Social Security and
Medicare programs, and not decimate our social safety net or the rest of the
federal government. (PewUSA
Pew)
Does it really make sense to think we can cut
the federal budget by as much as, say, 10% and, at the same time, provide an
effective national defense and maintain our Social Security and Medicare
programs without decimating our social safety net or the rest of the federal
government? Can we solve our fiscal problems by cutting defense? What about
waste, fraud, and abuse? Is it possible to solve our fiscal problems by
eliminating waste, fraud and abuse in the federal budget?
What do we find when we look at the actual
numbers in the budget?
Figure 5.1 is constructed from the
OMB's
Table 3.1—Outlays by Superfunction and Function.
This figure plots a breakdown of the actual
expenditures of the federal government from 1940 through 2013 in terms of
its three largest categories (Superfunctions)—Defense,
Human Resources, and Net Interest—plus
All Other Outlays which is calculated by subtracting the sum of the
three largest categories from Total Outlays.
Source:
Office of Management and Budget. (3.1
10.1)
What does Figure 5.1
tell us about our ability to cut the federal budget without cutting Social
Security or Medicare and without decimating our social safety net or the
rest of the federal government?
With the end of the wars in Iraq and
Afghanistan and the possibility of realigning our budget priorities away
from the military threats we faced twenty-five or thirty years ago and
toward those we face today, there may be some room to maneuver when it comes
to Defense. But there is no reason to believe we can solve all of our
fiscal problems simply by cutting Defense. Defense was only
18.2% of the federal budget in 2013 and 3.8% of our gross income. Even if we
were to cut Defense in half—which
virtually no one would be willing to do—it would reduce the federal
budget by less than 10%.
Net Interest in
Figure 5.1 must be paid when it comes due, so nothing can be saved
there.
As for All Other Outlays in Figure
5.1, as was noted, this category is constructed by subtracting the sum
of Defense, Human Resources, and Net Interest from
Total Outlays. It shows us how much the federal government spent on
everything else the government does. All Other Outlays consists of
such things as expenditures on
Administration of Justice,
General Government,
Energy,
Natural Resources and Environment,
Transportation,
Community and Regional Development,
International Affairs,
General Science,
Space,
Technology,
Agriculture, and
everything else the federal government does.
It is obvious—or at least it should be obvious
to anyone who looks at the actual expenditures of the federal government in
this category plotted in Figure 5.1—that there is no reason to
believe we can save a substantial amount of money by cutting All Other
Outlays without substantially inhibiting the government's ability to
function. The expenditures on programs in this category have already been
cut by over 50% relative to the economy since 1980—from 15.4% of the budget
and 3.2% of the GDP in 1980 to 5.3% of the budget and 1.2% of GDP in
2013—and even if we were to eliminate all of these expenditures completely—which,
of course, we can't do and still have a functioning government—we would
succeed in reducing the size of the federal budget by only 5.3%%.
Thus, if we are serious about saving as much as
10% of our total federal taxes, unless we are willing to make draconian cuts
in Defense and the rest of the federal budget, we must look to
Human Resources. That's where the money is, and it's also where
Social Security and Medicare are as well as the other
social-insurance programs that make up our social safety net.
Does it really make sense to think we can save
a lot of money by cutting Human Resources without cutting Social
Security or Medicare or without decimating the programs that make up our
social safety net?
Figure 5.2
is constructed from the
OMB's
Table 11.3—Outlays for Payments for Individuals. This figure breaks down
the Human Resources portion
of the budget into four components. The first, Retirement/Disability,
is the sum of all federal expenditures on retirement and disability programs
listed in
Table 11.3. The second, Healthcare, is the sum of all federal
expenditures on healthcare listed in
Table 11.3. The third, Other Payments for Individuals, is the sum
of all federal expenditures on all payments-for-individuals programs listed
in
Table 11.3 that are not medical or retirement/disability programs. The
final component, Other Human Resources, is constructed by subtracting
the sum of the other three components in Figure 5.2 (i.e., the total
of
Outlays for Payments for Individuals in
OMB's
Table 11.3) from Human Resources in Figure 5.1. It is the
total of all government expenditures on all other Human Resources
programs.
Source:
Office of Management and Budget. (11.3
3.1
10.1)
It is clear from Figure 5.2 that
Retirement/Disability and Healthcare combined dominate Human
Resources as they accounted for some 83% of all Human Resources
expenditures in 2013. This would suggest that if we are to find ways to make
substantial cuts in Human Resources we should begin by looking at
Retirement/Disability and Healthcare.
Table 5.1
shows all of the federal programs listed in the
OMB's
Table 11.3 that are included in
Retirement/Disability in Figure 5.2 along with the amount spent
on each program in 2013, the percent of GDP each program consumed in that
year, and the percent of the federal budget each program consumed.
Table 5.1: Expenditures
Included in Retirement/Disability, 2013.
Source:
Office of Management and Budget. (11.3
3.1
10.1)
It is clear from this table that
Retirement/Disability is dominated by Social Security in that fully 76%
of the total in 2013 went to Social Security where 19% went to civil
service, military, and railroad retirement/disability programs, and 5% went
to the
Supplemental Security Income (SSI) program. It is equally clear from
this table that there is no way to make substantial cuts in this portion of
Human Resources without cutting Social Security. After all,
military, civil servants, railroad employees, and other government employees
are just as entitled to their retirement/disability benefits as are Social
Security recipients.
This leaves the SSI program which was only 5%
of Human Resource expenditures in 2013 and 1.5% of the entire federal
budget. Aside from the fact that SSI was only 1.5% of the budget in 2013 and
0.3% of our gross income in 2013, as we saw in Chapter 4, SSI is the primary
social safety-net program that provides for indigent disabled and indigent
elderly individuals who are either not eligible for Social Security or whose
Social Security benefits fall below a subsistence level. Not only would
substantial cuts in this program save virtually nothing, they would tear a
hole in our social safety net.
What about Healthcare?
Table 5.2
shows all of the federal programs listed in the
OMB's
Table 11.3 that are included in Healthcare
along with the amount spent on each in 2013, the percent of GDP each
program consumed in that year, and the percent of the federal budget each
program consumed.
Table 5.2: Expenditures
Included in Healthcare, 2013.
Source:
Office of Management and Budget. (11.3
3.1
10.1)
Here we are looking
at 27% of the Total Outlays. It is clear from this table that
Medicare and
Medicaid dominate Healthcare in that
these two programs accounted for over 90% of Healthcare expenditures
in 2013 with
Medicare accounting for 70% of that 90%. What
about the 30% of this 90% that went to
Medicaid?
Medicaid represented 7.68% of the federal budget and 1.6% of our gross
income in 2013 and, again, as we saw in Chapter 4, in 2008 some 75% of
Medicaid's beneficiaries were either poor children, indigent blind/disabled
individuals, or indigent elderly adults age 65 and over. Over 85% of
Medicaid's expenditures went to these individuals.
Medicaid lies at the very core of our social safety net, and it would
appear there is very little room to cut here without causing a great deal of
hardship and misery through the denial of medical services to poor children
or indigent blind/disabled or indigent elderly adults.
That leaves the remaining 10% of the Human
Resources budget that went to the other healthcare
programs listed in Table 5.2. Here we are talking about 2.2% of the
entire federal budget and 0.5% of our gross income in 2013. Of that 10% of
Human Resources that went to the other healthcare programs, 67% went
to veterans (Hospital
and medical care for veterans and
Uniformed Services retiree health care fund), 12% to
Children's health insurance, and 5.6% went to
Indian health, 9.5% went to
Health resources and services (a program that is designed to meet the
healthcare needs in mostly rural underserved areas), 4% went to
Substance abuse and mental health services (a program that is severely
underfunded given the extent of the substance abuse and mental health
problems in our country), and 1% went to Other federal healthcare programs.
Veterans certainly have as much right to their
medical benefits as Medicare recipients, so there is no reason to think we
can or should cut veterans' medical benefits without cutting Medicare as
well, and the rest of these programs play an important role in our social
safety net. In addition, since the rest of these programs consumed only
0.73% of the entire federal budget in 2013 and 0.15% of our gross income
there is virtually nothing to be saved by eliminating them.
The leaves but two categories in Figure 5.2
to examine: Other Payments for Individuals and Other Human
Resources.
Other Payments for
Individuals includes the expenditures
on all of the federal programs in the
OMB's
Table 11.3 that are not medical or
retirement/disability programs. The items included in this category along
with the amount spent on each in 2013, the percent of GDP each program
consumed in that year, and the percent of the federal budget each program
consumed are given in Table 5.3.
Table 5.3: Non-Medical and
Non-Retirement/Disability Programs, 2013.
Source:
Office of Management and Budget. (11.3
3.1
10.1)
The first thing that should be noted about this table is that, in spite
of the abundance of programs, we are talking about only 11.5% of the entire
federal budget in 2013 and 2.4% of our gross income here. While there were
no programs that dominated this category, the ten largest items in Table
5.3 are arranged from largest to smallest and listed in Table 5.4.
These ten items accounted for 94% of the total expenditures in the Other
Payments for Individuals category in 2013.
Table 5.4: Ten Largest Items
in Other Payments for Individuals, 2013.
As we saw in Chapter 4, the ten programs listed
in Table 5.4 are the backbone of our social safety net. We're talking
about the
Earned income and
Child Tax Credits (20% of Total: Other Payments for Individuals
in Table 5.3) that are designed to encourage work and assist
the working poor who pay over 14% of their
earned income in payroll taxes. We’re talking about
Food Stamps (SNAP),
Special milk, and
Supplemental Feeding programs (25%) that assist the poor in feeding
themselves and their children. About
Student Aid (11%),
Unemployment Compensation (17%),
Veterans education benefits (3.3%), and about
Foster Care and Adoption (1.7%). And we're talking about only 11.5% of
the entire federal budget in all of the programs in Other Payments for
Individuals combined and 2.4% of our gross income.
There is no reason to think that we can obtain
a great deal of savings by making substantial cuts in this portion of the
budget without dismantling our social safety net and causing a great deal of
hardship and misery. The money just isn't in these programs, and it's
through these programs—combined with Medicaid and SSI—that our war against
hardship and misery is waged.
This leaves only
Other Human Resources in the Human Resources portion of the
budget. Other Human Resources is the total of government
expenditures on all Human Resources programs that are not included in
the other categories in Figure 5.2. This residual can be
disposed of rather quickly. It represented less than 1% of the budget in
2013 and less than 0.2% of our gross income, and, aside from the fact that
this is insignificant in the grand scheme of things, as is shown in
Figure 5.2, the programs in this portion of the budget have
already been virtually eliminated since 1980.
That’s it! That's all there is to the entire
federal budget! Defense, Net Interest, and All Other
Outlays in Figure 5.1 plus Retirement/Disability,
Healthcare, Other Payments for Individuals, and Other
Human Resources in Figure 5.2 make up the entire federal
budget. Everything in the budget on which the federal government spends
money is included in one or another of these seven categories.
There are widespread complaints about waste,
fraud, and abuse in the federal budget, and we should strive to eliminate
such activities wherever and whenever possible. At the same time, there is
no reason to believe our efforts in this regard can have much of an effect
on the size of the federal budget.
As was noted above, it may be possible to
eliminate some waste in the defense budget as we demobilize from the Iraq
and Afghanistan wars and through realigning our budget priorities away from
the military threats we faced twenty-five or thirty years ago and toward
those we face today. It was also noted above that in order to cut the total
budget by 10% in this way we would have to cut Defense by more than
50%, and
virtually no one is willing to cut the defense budget by this amount.
And then there’s Healthcare.
According to the
Organization for Economic Cooperation and Development
(OECD), the
World Health Organization (WHO), and the
Central Intelligence Agency World Factbook we
spent more than twice as much per person as the average of the other OECD
countries ($8,233
compared to $3,153) in 2010
and almost twice as much as a percent of our gross income (17.6%
compared to 9.4%), and, yet, we ranked
24th among the 34 OECD countries in life
expectancy (51st
among all countries),
28th among these 34 countries in infant
mortality (50th
among all countries),
24th among all countries
in the availability of doctors,
25th in mother’s health,
37th in the overall performance of our
healthcare system.
In other words, even though we spend more on
healthcare than any other country in the world, and spend twice the average
of what the other OECD countries spend, we benefit less from our
expenditures than most of the OECD countries benefit from theirs in that
their people live longer than we do; they are healthier than we are, and the
rate at which their children die in infancy is less than the rate at which
our children die in infancy. (OECD
OECD Charts
NYT
IOM
JAMA1
JAMA2
STC
WHO) There is obviously something wrong here!
Both private and
public healthcare costs in the United States have
increased dramatically over the past fifty years,
and even though the
Affordable Care Act (ACA) promises to improve
the health of our population by increasing the availability of healthcare,
there is little reason to believe that the
ACA will lead to substantial savings to
taxpayers in the absence of a
public option. It is either a public option or
some kind of
single-payer mechanism that makes it possible
for healthcare costs to be controlled in those countries that have better
health statistics than we do, and there is little reason to believe we will
be able to control our healthcare costs, and, at the same time, improve
the health of our population until we implement a similar system at
home.
It is also worth noting that even though
reforming our healthcare system by adopting a
public option or implementing some kind of
single-payer mechanism will undoubtedly save taxpayers’ money, it will
not necessarily reduce the size of the federal budget or lead to lower
taxes.
Depending on the kind of system implemented, the savings to taxpayers
could be accomplished through a net savings in the combined private and
public costs of healthcare as private healthcare costs (paid directly by
taxpayers) fall by more than public healthcare costs (and taxes) go up.
The fundamental problem with Defense is
to be found in policy decisions that misalign our budget priorities, and the
fundamental problem with Healthcare is our over-reliance on a
private, corporate-oriented,
multiple-payer, third-party, fee-for-service payment system that
makes it impossible to produce optimal healthcare outcomes at a reasonable
cost. Specific instances of waste, fraud, and abuse are trivial in
comparison to the systemic problems in Defense and Healthcare.
The numbers just don't add up. This is particularly so when we are talking
about such things as
$200 hammers or $7,000 coffee pots. Eliminating this kind of waste,
fraud, and abuse simply will not, and cannot have a significant effect on
the size of the federal budget.
The federal budget amounted to $3,454.6 billion
in 2013. Ten percent of $3,454.6 billion is $345.5 billion. That's 345,460
millions! This means that in order to reduce the budget by 10% one million
dollars at a time we would have to find 345,460 instances in which one
million dollars worth of waste, fraud, or abuse occurs on an annual basis.
We can’t even count to 345,460 let alone find 345,460 ways in which the
federal government squanders one million dollars on an annual basis. Even if
we could find a new way to save a million dollars a year every day it would
take almost a thousand years to save $345.5 billion in this way. (345,460 /
365.25 = 945.8) It would take almost 100 years to save this amount if we
were to save $10 million a day. Even when there are specific instances of
waste, fraud, and abuse that run in the hundreds of millions or even
billions of dollars the numbers just don't add up to $345.5 billion. (Coburn
Sanders
MFCU
NYT
StLuisFed
Riedl)
When we look at Figure 5.3, which shows
how the federal budget is actually spent in the real world, the numbers
become even more problematic.
Source:
Office of Management and Budget’s (11.3
3.2
10.1).
As is shown in Figure 5.3,
Payments For Individuals made up 69% of the
budget in 2013.
While there may be some inefficiency in the administration of the programs
in this 69% of the budget, administrative costs are relatively insignificant
compared to the benefits paid out. Medicare's administrative costs, for
example, are as little as
2% of the benefits it pays out and Social
Security's as little as
1%. These two programs alone took up 40% of
the total budget in 2013, and even if we were to eliminate all of their
administrative costs—which we can't do and still make these programs work—it
would reduce the total budget by less than 1% (0.02 x 0.4 = 0.008 = 0.8%).
This means that in order to find significant
amounts of waste, fraud, and abuse in this 69% of the budget we have to look
at the tens of millions of beneficiaries whose benefits average in the
thousands of dollars. Now we are talking about the need to find millions of
instances of waste, fraud, and abuse on an annual basis in the thousands of
dollars range, not just hundreds of thousands in the millions of dollars
range. There is no way we can expect to do this without expanding the size
of the federal bureaucracy, and since it costs money to expand the federal
bureaucracy, there is no guarantee we will be able to reduce the budget at
all by doing this even if by doing this we are able to eliminate all of the
waste, fraud, and abuse that may exist among the tens of millions of
beneficiaries these programs serve. It may even cost more to expand the
bureaucracy than can be saved. This is especially so in light of the fact
that there doesn't seem to be any reason to believe that waste, fraud, and
abuse is very widespread among these beneficiaries in the first place.
The nature of this problem can be seen by
examining a report published by the
Federal Reserve Bank of St. Louis in which it estimated that some $3.3
billion worth of fraudulent unemployment compensation claims were paid in
2011. That works out to 3.06% of the total $108 billion worth of claims that
were paid in a program that had 3.7 million beneficiaries in 2011. The point
is that we can't simply eliminate this $3.3 billion worth of fraudulent
unemployment compensation claims by waving a wand or by increasing the
amount of money we spend to investigate those few who are actually
committing this fraud, 88,000 of whom were collecting benefits while working
part time and being paid under the table. We have to investigate all of the
3.7 million beneficiaries in order to find those few, and this can't be done
without paying people to do it.
Since the $108 billion in unemployment
compensation claims amounted to only 3% of the $3,603 billion federal budget
in 2011, and only 3.06% of this 3% was wasted in specific instances of
fraud, that works out to 0.09% of the entire federal budget that was wasted
in fraudulently collected unemployment claims (0.0306 x 0.03 = 0.000918 =
0.09%). This means that even if we are successful in eliminating all of the
$3.3 billion in fraudulent unemployment compensation claims in the system,
the most we can save by doing this is 0.09% of the total budget, and if it
costs us more than $3.3 billion to expand the bureaucracy in order to
eliminate this 0.09% of the total budget it will actually cost us more to
eliminate this fraud than we can save. It also means that if we were to find
similar rates of fraud (3.06%) in the rest of the 69% of the budget taken up
by payments to individuals the most we can save by eliminating this fraud is
2.1% of the total budget (0.0306 x .69 = 0.021114 = 2.1%), and if it costs
us more than $73 billion (0.0306 x 0.69 x 3,454.6 = 72.9404) to expand the
bureaucracy in order to do this, it will cost us more than we can save.
This doesn't mean we shouldn't try to eliminate
waste, fraud, and abuse in this portion of the budget wherever and whenever
we can. It only means we should not expect to be able to save $72 billion
or reduce the federal budget by as much as 2.1% as a result of our efforts
to do so.
As for the rest of the budget, there is
no reason to believe significant savings can be found there either. We have
already discussed Defense—fraud or no fraud, virtually no one is
willing to cut defense by a sufficient amount to make a significant
difference in the size of the total budget—and, as was noted above, Net
Interest must be paid when it comes due so nothing can be saved there.
As was also noted above, All Other Outlays in Figure 2 has
already been cut by almost 50% since 1980 and Other Human Resources
in Figure 3 has almost disappeared. The programs in these last two
categories take up less than 7% of the total budget, and since they have
been cut so dramatically over the past thirty years, there is no reason to
think we can save a substantial amount by rooting out fraud in this less
than 7% of the budget.
Again, that’s it! That’s all there is to the
entire federal budget! There’s no place else to go to eliminate waste,
fraud, and abuse in the federal budget.
Summary and Conclusions
In searching for ways to cut the federal budget
it is important to understand that cutting a small amount from a large
portion of the budget or a large amount from a small portion of the budget
may yield what seems to be a lot of money in absolute terms, but it doesn't
yield a lot of money relative to the size of the total budget. It only
reduces the total budget by a small amount. To reduce the total budget by a
large amount we have to cut a large amount from a large portion of the
budget. That's just grade school arithmetic.
When we look at the actual numbers in the
federal budget we find it is not possible to cut a large amount from a large
portion of the budget without cutting defense, Social Security, Medicare, or
the programs that make up our social safety net because that's where the
money is. There simply isn't enough money in the rest of the budget to make
a difference even if we were to cut a large amount from this small portion
of the budget. What’s more, the rest of the budget has already been cut to
the bone since 1980, and the federal government would simply be unable to
function if we were to make large cuts in this small portion of the budget.
Even though there may be savings to be found in
realigning our defense priorities as we demobilize from the Iraq and
Afghanistan wars, and there are definitely substantial savings to be found
in reorganizing healthcare by adopting a
public option or
single-payer system, there is no reason to believe we would be able to
reduce the size of the total budget by a substantial amount even if we were
to realize these savings. We would have to cut the defense budget by more
than half in order to reduce the total budget by 10% in this way, something
which
virtually no one is willing to do, and,
depending on the kind of single-payer option implemented, implementing a
single-payer system in order to improve the efficiency of our healthcare
system could require an increase rather than a decrease in the size of the
federal budget in order to reduce overall healthcare cost (taxes plus
private costs) paid by taxpayers.
When it comes to specific instances of waste,
fraud, and abuse, all we can hope to do by expanding our efforts in this
area is cut a small amount from a large portion of the budget, and doing
this could actually cost us more than we can save by doing it. As has been
noted, this does not mean we should ignore this problem. It only means that
we should not expect to see a substantial reduction in the size of the
budget as a result of our efforts to solve it. Those who think otherwise
have a problem with arithmetic. Their numbers just don't add up. (Coburn
Sanders
MFCU
NYT
StLuisFed
Riedl)
A fundamental, real-world truth that has been
almost completely ignored in the otherwise hopelessly irrational debate we
have been subjected to over the past forty years is that
there are certain things only the government can do. One is providing a
system of
national defense. Another is providing
legal and
law enforcement systems that set and enforce the rules in a fair,
efficient, and effective way. Another is providing the public
education and
infrastructure that makes possible such things as an educated labor
force and an efficient
transportation system. Another is providing a
social-insurance system that gives ordinary people insurance against the
personal devastation can be caused by the vagaries of life. Yet another is
providing a financial regulatory system that facilitates a stable, growing
economy. (Amy
Musgrave
Lindert
Kleinbard)
These
essential government services and benefits cannot be provided in a fair
or just or efficient or effective manner by private enterprise guided by the
profit motive. They can only be provided in this manner by a democratically
elected government whose elected officials are dedicated to achieving these
ends. And they most definitely cannot be provided in this manner by
elected officials whose sole objective is to cut taxes and, thereby,
defund the government programs that are designed to provide these
essential government services and benefits.
For thirty years following World War II our
democratically elected government made huge investments in our society. It
built our
Interstate Highway System. It expanded our educational systems through
grants in aid and such programs as the
GI Bill and
National Defense Education Act as it subsidized the education of the
best and the brightest among us who, in turn, provided the scientific
research that led to the tremendous advances in technology we have seen in
the past sixty years. It also made huge investments in our physical
infrastructure and in our social-insurance system. The end result of these
public investments was a highly educated and productive labor force, a
tremendous increase in our physical infrastructure, and a social environment
that provided the social capital that made it possible for our
economic, political, and social systems to flourish. If these systems are to
flourish again, the physical infrastructure and social capital that made
this possible in the past must not only be maintained, they must be allowed
to grow, and this cannot be accomplished today without a substantial
increase in government expenditures.
Allowing our physical infrastructure and social
capital to grow not only increases productivity, it expands our economic
system into areas that provide huge social benefits—education, police and
fire protection, regulation, public health, scientific and technological
research, social insurance, and the construction of physical infrastructure
such as streets, roads, highways, bridges, subways, trains, ports, water
treatment and sanitization facilities, schools, public lighting, hospitals,
parks, beaches, and other recreation facilities—that balance our economic
system in areas that cannot be provided efficiently by the private sector. (Amy
Musgrave
Lindert
Kleinbard)
Since the 1970s we have lowered taxes on the
wealthy and increased taxes on the not so wealthy as we dismantled our
regulatory systems and
cut back on social welfare and other government programs that serve the
common good and promote the general Welfare. In the process we have consumed
a substantial portion of the public investments we had accumulated in the
past as we allowed those investments to depreciate. The result has been a
fall in income for the vast majority of our population and a growing
divisiveness within our society as we have
fallen behind in educating our children, our
physical infrastructure has deteriorated, the rate of increase in
productivity has fallen, our healthcare system has become
the least efficient among the most advanced countries of the world,
we have the
highest incarceration rate in the world, our national debt has grown
dramatically relative to the size of the economy since 1980, and fraud has
run rampant in our financial system leading to the worst economic disaster
since the
Great Depression. This is the legacy of our attempts to eliminate waste,
fraud, and abuse in the federal government by simply cutting taxes and the
federal budget.
It is the incongruous belief that, somehow, we
can have all of the
essential services and benefits that
only government can provide and, at the same time, cut the taxes and
defund the government programs designed to provide these services and
benefits that has led us to the nonfunctioning government we have today. The
simple fact is, it is impossible for the government to function to provide
these services and benefits if we refuse to raise the taxes needed to pay
for the government programs that provide these services and benefits.
The only way we can have the
essential services and benefits that
only government can provide is by raising the taxes needed to pay for
these services and benefits and then demanding that these services and
benefits be provided by our democratically elected government: an effective
national defense; a fair and just
legal and
criminal justice system; quality
public education; effective
public health programs; efficient
streets, roads, highways, and other forms of
public transportation; a clean and safe
environment; safe
foods, drugs, and other
consumer products; safe
working conditions; an effective and efficient
personal healthcare system; a viable
social-insurance system; and a stable, growing economy
that is not plagued by cycles of booms and busts
that drive our country and people
deeper and deeper into debt and lead to
economic catastrophes brought on by epidemics of
fraud, recklessness, and irresponsible behavior
on the part of those in charge of our financial institutions.
(Amy
Musgrave
Lindert
Kleinbard)
National income in the United States was
$14,577 billion in 2013, and total federal outlays came to
$3,456 billion. This means the total tax liability created by the
OMB’s projected 10.6% deficit for 2019 amounts to 2.5% of our national
income. There was a surplus in the federal budget
equal to
2.4% of GDP in 2000 before the massive
2001-2003 Bush tax cuts, before the invasion
of Iraq, and before those who ran our financial institutions
devastated our economy. The bulk of these tax cuts
were made permanent in the
American Taxpayer Relief Act of 2012. Does it really make sense to make
dramatic cuts in Social Security or Medicare or to dismantle a major portion
of the rest of the federal government rather than rescind the tax cuts in
this Act and return to the tax structure we had in 2000? We could even
increase taxes by the extra 1% or 2% of our national income that would be
required to replenish the physical infrastructure and social capital we have
consumed over the past thirty-five years and allow these kinds of public
investments to grow for the benefit of our children and grandchildren if we
wanted to. These are the kinds of actual, real-world choices we must make if
we are to solve the fiscal problems with which we are faced today. (Kleinbard)
Endnotes
The
OECD countries that have shorter life expectances than we have are Czech
Republic, Mexico, Poland, Slovakia, Hungary, Estonia, and Turkey. Of
these countries Slovakia, the Czech Republic, and Hungary have lower
infant mortality rates than we do. (OECD
OECD Charts
JAMA1
JAMA2)
As we
have seen in Table 5.1 through Table 5.4 above, the bulk
of these expenditures in this 69% of the budget are to be found in the
Retirement/Disability (Social
Security, 21% of the budget, and military and other federal employee
retirement benefits, 5%), Healthcare (Medicare
16%;
Medicaid, 7%; and
Veterans health programs, 1.4%), and Other Payments for
Individuals (SNAP
(formerly Food stamps) (including Puerto Rico),
Child nutrition and special milk programs,
Supplemental feeding programs (WIC and CSFP), and other nutrition
programs, 3.2%;
Earned income tax credit, 1.7%;
Payment where child credit exceeds tax liability, 0.6%;
Supplemental security income program, 1.5%;
Housing assistance, 1.1%;
Family support payments to States and TANF, 0.6%; and
Daycare and
Payments to States—Foster Care/Adoption Assist., 0.3%).
Balancing our economic system in this way has the added effect of
decreasing the concentration of income and bolstering our mass markets
as income is transferred through our tax system to those areas in the
public sector that provide the kinds of huge economic and social
benefits the private enterprise cannot provide—benefits that are
essential to the economic prosperity and the social wellbeing of our
society. See:
Amy,
Musgrave,
Lindert,
Kleinbard, and
Where Did All The Money Go?
See
Where Did All The Money Go? for a detailed explanation of how
defunding the government’s regulatory system led to the financial crisis
that began in 2007.