The U.S. national debt now stands at $16.9 trillion. The Congressional Budget Office’s monthly review for July of this year states, “The federal government’s budget deficit was slightly more than $600 billion in the first 10 months of fiscal year 2013…”
These numbers are just plain bad.
Obviously, $600 billion is better than the $1 trillion dollar deficits America has been running the past few years, but we’re still spending roughly $600 billion more than we actually take in on an annual basis. That number can be spun to make our financial situation sound good, but in reality, it’s not.
And because the United States keeps spending more than it brings in each year, the debt continues to climb. Hello $17.0 trillion, we’ll be seeing you soon.
So, how can we turn this faltering ship around?
There are some who call for draconian, across the board cuts to the federal budget to reverse America’s precarious course. In reality, that’s not necessary. Here’s why.
In federal Fiscal Year 2011, mandatory spending made up $2 trillion of the U.S.’s total spending of $3.5 trillion.
Social Security was $725 billion of that $2 trillion, while Medicare/Medicaid accounted for approximately $800 billion. The remainder, $545 billion give or take, which falls into the category of “other” (unemployment compensation, federal civilian and military retirement, veterans’ benefits, earned income tax credit, food stamps, etc.) made up the rest of the mandatory spending number.
It’s interesting, but when most of us think of government spending, we think of federal workers and agencies like the IRS, Department of Education, Transportation, Agriculture, etc. But spending for those areas, which is considered discretionary spending, only totals $646 billion – at least in FY 2011.
Defense spending comes in at roughly $700 billion, and also falls into the discretionary category.
In the personal finance world, when trying to get a budget under control, it’s nice to cut out the lattes, but it’s the big-ticket items like mortgages and car loans that have the most effect on a budget. Reducing those high priced areas of spending is where you’re really going to get the biggest bang for your (decreased) buck.
And that applies to government spending as well.
We can hack away at government salaries, various federal departments and agencies, but in reality, that’s a latte or two worth of saving.
I don’t mean to say that saving in those areas isn’t good, it’s just not going to get us to where we need to be.
We want to trim the mortgage and car loans, and for that we need to tackle health care spending and Social Security. Because it’s these areas where we’re going to see the greatest increase in expenditures due, simply, to the exponential growth of the U.S. population utilizing those services.
Tack on that many of those individuals will be living much longer lives than the actuarial tables anticipated when the programs were established, and you see why an already out of whack budget will become even more so down the road.
However, it’s not all doom and gloom. This is where a budget fix becomes doable.
The solutions are obvious. A few may include, tweaking the Social Security and Medicare/Medicaid programs to slightly reduce benefit levels, adding means testing for programs that do not already do so to ensure millionaires are not collecting benefits they don’t really need, raising eligibility ages where appropriate and increasing the payroll and Medicare taxes ever so slightly to generate additional revenue for the flagging budgets of these big-ticket programs.
Not all of these reforms would be necessary. A few would likely suffice for shoring things up.
And in doing so, the overall U.S. budget picture would begin to brighten.
But, I’m sure you can see the major stumbling block on this path to fiscal nirvana. Politics.
Every change mentioned would be politically costly and framed by the opposition in such a way that made the political party/individual suggesting it out to be doing its/his/her best to discard, both figuratively and literally, America’s elderly population. When in fact, not instituting reforms would be doing exactly that.
There is no question that Social Security and Medicare are headed toward insolvency. And the longer this country does nothing, the more difficult the reforms will be, both politically and on the beneficiaries once changes are made.
But the more aggravating aspect of this debate is that if entitlement program reforms are tackled now, in a meaningful way, America not only saves those programs from future collapse, it also takes significant steps toward fixing the bigger fiscal problems facing this country.
It seems like a no brainer to me. If only America’s politicians felt the same.