What’s Interesting about the US Budget Battle

When the Republicans were swept into office in 2010, one of the things they promised to do was rein in spending and balance the budget. To balance a budget–yours, mine, the local Elks Association–you must either cut spending or raise income (or some combination of the two). For the federal budget, raising income is dead on arrival. The newly elected Republicans, even before they took office, pressured the president and the lame duck congress to continue the Bush era tax cuts, and we can be sure they will fight any measure that will close tax loopholes, end corporate subsidies, raise taxes, or otherwise directly increase federal revenue.

So, with a direct increase in revenue out of the question, the Republicans have to cut spending and hope the continuation of the Bush era tax cuts will stimulate enough growth in the economy to significantly increase revenue (this is known as Voodoo Economics and, despite its having failed when it was tried both in the Reagan and Bush II administrations, conservative Americans put their hope in it in the same way the conservative Russians once put their hope in Communism).

The President’s budget proposal for 2012 is $3.8 trillion with a CBO-projected deficit of $1.1 trillion. There are three broad categories of spending in the budget. the first is interest on the national debt–about 5.3% of the total. Second is mandatory spending on entitlement programs such as Social Security (including SSI), Medicaid, Medicare, food stamps and other appropriated entitlements, as well as salaries and benefits for elected federal officials (such as congressmen, federal judges, and the president) and their staffs–about 59.5% of the total. And third is discretionary spending which covers everything else–about 35.2% of the total.

So to break it down:

• Interest payments on the national debt: ~$201.4 billion
• Mandatory spending: ~2.261 trillion
• Discretionary spending: ~1.3376 trillion

The Republicans, who promised their supporters a balanced budget, have a problem. Do you see it?

Well, they can’t cut the interest payments on the national debt. And they can’t simply cut mandatory spending without changing the formulas on which they are based, and that will take legislation. Career-killing legislation. So all they have left is discretionary spending. They need to cut about $1.1 trillion to balance the budget, but all they have to work with is ~$1.3376 trillion. Oh dear.

But it gets worse. Discretionary spending is divided into two categories: defense (or security) spending (about 20.3% of the total budget, or ~$771.4 billion) and non-defense (or non-security) spending (about 15% of the total budget, or ~$570 billion). No politician would willingly cut his own throat by cutting defense spending–it would make him look soft on defense and it would mean defense contractors would stop donating to his campaign.

So that leaves? Anyone? Anyone? Begins with “non”? Non-defense discretionary spending.

Now you see the problem. Even if they zeroed out the non-defense discretionary budget (and I know at least one person who wouldn’t mind if they did), they would still be ~$530 billion short of balancing the budget.

The actual budget the the House Republicans have for 2012 includes $3.4 billion in spending and a ~$700 billion deficit. Again, they face the same problem. There is not enough discretionary spending to cut even all of it and balance the budget.

If Republicans are genuinely interested in balancing the budget, they are going to have to take the risk and cut defense spending, reform entitlements, cut their own budgets (salary, benefits, staff), and directly raise revenue. Otherwise they are just blowing smoke up our collective bottoms.