Diary

A Return to Fiscal Sanity

Conservatism has always had as its signature issue, fiscal sobriety and prudence. Ronald Reagan used to go around saying that the federal government should be run like a company, which has to reconcile its spending with income or go bankrupt.

I believe this is still a good approach and a sound idea. I would put forward that the conservative movement must grasp the issue again, and take the leadership on returning the government to fiscal balance and sanity.

I have based all the figures in this entry on the federal budget shown on the WallStats “Death and taxes chart-

 http://www.wallstats.com/deathandtaxes

  it is truly a terrific graphic visual for how the government spends money.

First, the basic facts:

The total income for the fiscal year 2010 federal government is $2.333 Trillion. The total spending is $3.591 Trillion. The budget deficit then, stands at 1.405T, or more than a third of the total budget.

Of the $3.591 Trillion, 1.421 Trillion is discretionary, able to be cut. The remaining $2.17 Trillion goes for Social Security, Medicare/ Medicaid, interest on the debt, and so forth. The biggest portion of this is Social Security/ Medicare/ Medicaid accounting for about $1.3 Trillion of the $2.17 Trillion.

The federal discretionary budget for FY 2010 is $1.421 Trillion; It is broken down into military spending $901 Billion (62%) and non-military $520 Billion (38%).

 

Now for some conclusions:

Any discussion about fiscal conservatism must begin with a desire to balance the budget, to erase the yawning chasm between income and outlay. As long as budget deficits are considered acceptable, they will only grow larger, until the day of reckoning.

There are really only three alternatives- the budget gap can be erased by higher taxes, lower spending, or a combination of the two. I am not including ideas such as a rise in tax receipts, or sudden drop in Medicare spending, since those are highly unlikely. A sudden expansion of the economy will produce higher tax revenue; but it jis just as likely that a recession could follow, wiping out whatever gains the boom produced. It is wiser, more prudent, and more conservative to budget according to the facts on the ground, not on a fortunate turn of events.

So lets suppose we try the first notion- raising taxes. Is it possible to wring another $1,405,000,000.00  out of the economy? Even if the political will were there, I doubt it would be feasible- A surge of taxes on that order would act as a drag on the economy, and could actually backfire and produce another recession.

So lets turn to spending cuts. Where would we cut $1,405,000,000.00  from the federal budget? How do we cut 1/3 of federal spending?

First, the budget deficit can’t be erased simply through discretionary spending- The entire discretionary budget (including Defense) accounts for less than the deficit.

It is also clear that cutting non-discretionary spending means cutting Medicare/ Medicaid, since they account for more than half of non-discretionary budget.

So any spending cuts will have to involve discretionary spending. And there can’t be any discussion of spending cuts without looking at the military budget because it consumes 63% of the discretionary budget

Or to put it another way, fixating on the pennies we spend on the NEA, National Park Service, and bridges to nowhere is absurd, compared to where the money really is, which is Defense, Medicaid/ Medicare.

So this explains one thing- it explains why no political party or movement or individual has been able to reconcile budget income and outlay since Eisenhower. The three biggest expenses of the federal government are also the three most popular, and the most resistant to cuts. Even if, by some miracle, all spending other than Defense, Social Security, Medicare and Medicaid were to be eliminated- zeroed out, cut entirely- the government would still spend about $2.3 Trillion, compared to the $2.333 Trillion of income.

So the task for anyone proposing to carry the banner of fiscal conservatism will be to put forward a set of budget priorities that leads to erasing the massive deficit, either through increased taxes, reduced spending, or some combination thereof. In reality, there will need to be a combination- there just isn’t any way to kill such a massive beast through one silver bullet.

Needless to say, this is not going to be a happy discussion; it will be painful, and require adjustments to priorities on every side;

I have my suggestions, which I will put forward in another entry. But I think the first step for conservatives will be to simply acknowledge the task ahead, and decide to take the leadership on it.