Thursday, January 16, 2014
Indebted to Whom for Federal Budgets?
There's a lot of it being done in various conservative quarters today over the $1.1 trillion spending bill up for ratification in Congress. By a wide margin, House Republicans have passed it, and the Democrat-controlled Senate is expected to do the same before this week is out.
All this affirmation, with hardly anybody apparently reading its 1,582 pages and comprehensively digesting it. How could they? The bill was published only a couple of days ago. Nobody knows how much there is to dislike in it. Although, frankly, it's not like our legislators don't know this bill's basic outline. They've been working on it since last September, regurgitating parts of it - kicking and screaming - through budget showdowns and a government shut-down last fall. Remember those fun times?
Hey, you don't have to have a degree in economics to be legitimately skeptical of Washington's notoriously over-stuffed and under-funded budgets. Shucks, this pricetag alone oughta make any taxpayer gag: $1.1 trillion. There's no way to put a positive spin on such a massive outlay of taxpayer dollars. Some liberal groups try to soften the blow by pointing out it's lower than 2010's $1.275 trillion budget. But we all know that pitting dollar amounts against each other year over year is a futile exercise at best. Numbers alone never tell the whole story, do they? FOX News tried pointing out that "daily agency operations" spending was cut by an impressive-sounding $79 billion, but then dolefully added that all those billions only amounted to a 7% reduction in total expenditures.
If this is getting us closer to "living within our means," we sure are taking baby steps, aren't we?
A Billion Here, a Trillion There...
Tea Partiers say we're not even taking baby steps towards fiscal responsibility. They're livid at the more moderate Republicans in their ranks who opted to avoid another Capitol Hill showdown in an election year, voting overwhelmingly for the easy way out. For these Republicans, defending their support for this bill involves acknowledging their reliance on traditional political compromising - the stuff right-wing Tea Partiers claim is ruining America. But aren't baby steps better than no progress at all? What does the Tea Party have to show for itself when it comes to passing substantive budget cuts? At least the Republican party's compromisers were able to neuter some big-ticket spending boondoggles such as California's bullet train, and reduce the IRS's budget.
Sure, liberals got protections for Obamacare's funding, but isn't the whole Affordable Care Act turning into its own train wreck, putting its long-term survival in jeopardy? Speaking of trains, liberals may have also secured a billion dollars in subsidies for Amtrak in this budget, but isn't that cheaper than building more freeways to accommodate travelers who would be stranded without passenger rail in regions like the Boston -Washington corridor? The problem with budgets isn't just what you're funding, but what problems could develop if you don't fund something.
And sure, the convoluted machinations used by both conservatives and liberals to quantify and justify expenditures are fair game for Tea Partiers, but at $1.1 trillion, isn't it hard to imagine this bill not containing some pork for even Tea Party districts? Hey, daddy's gotta get re-elected to keep this party going.
Social Security in More Ways Than One
On the one hand, knowing how much taxpayer money we're spending, and where it's being spent, represents a good way of gauging the viability of a federal budget. In addition, many conservatives have also adopted deficit spending as a critical metric by which a federal budget needs to be validated - or not. For this particular budget, we don't have hard figures regarding how much of it will end up being unfunded. However, again, you don't need a degree in economics to know it will be significant.
Speaking of significant, did you know that America's most critical debt burden came about at the close of World War II? In 1945, debt held by the public constituted a whopping 113% of the Gross Domestic Product (GDP). We got out of that pickle thanks to some atrociously high personal income tax rates, which reached 95% in 1945, and were as high as 92% as late as 1953. Of course, tax rates slipped back down as an unprecedented surge in our post-war economy changed the face of not only the United States, but arguably, the world. Then, too, another argument has been whether or not our roaring economy back then allowed tax rates to sink, or whether sinking tax rates provided the impetus for our economic explosion.
Indeed, when it comes to the economy, numbers can be stacked against each other by both conservatives and liberals in attempts to disguise, convince, distort, confuse, and politically pontificate, just as is being done now over our current budget bill.
Take this budget's funding of entitlements, for instance. Ostensibly, right-wing disdain of entitlements centers on the belief that they undermine America's hardy work ethic. And when it comes to Social Security, why, it's little more than a legalized Ponzi scheme! Today's workers pay into it for future benefit, but it funds today's retirees! How un-American is that?
Well, let's think about this for a minute, since Social Security consumes so much of our budget. Federal debt that Americans held at the end of World War II did not include the indebtedness from Social Security and other social welfare programs that were either created or revamped by succeeding administrations and congresses since 1945. That's important to remember, because these new forms of liabilities are conveniently folded into a separate class of debt called "intragovernmental debt holdings," or "government account series," and include funds into which taxpayers contribute, through mechanisms like payroll deductions.
However, what we conveniently forget in the Ponzi scheme analogy is that not only are current retirees being paid, but, over the years, legislators have been diverting funds from these intragovernmental holdings for other purposes that have nothing to do with Social Security. That's one reason why we are running a deficit in Social Security these days - a whopping deficit of $2.5 trillion. Instead of blaming Social Security recipients for that drain, conservatives should instead blame the entitlement culture of Washington politicians!
These intragovernmental holdings also mean that, when they're combined with the more conventional understanding of federal debt (which runs around a much less foreboding 70%), you and I currently owe about 100% of the GDP, on an annual basis, when these budgets get passed by Congress.
Only Greece, Italy, and Japan run even greater debt-to-GDP ratios (Japan's is nearly twice as high). Russia, for whatever reason, runs the least.
Remember, America's worst ever debt-to-GDP ratio was 113%, after World War II. Back during Bill Clinton's last year in office, we were at 59.4%.
Debt Burden a Gross Product?
Funding pork barrel projects is one thing. Paying down our national debt is another. And getting both Democrats and Republicans to stop doing the former, and start doing the latter, frankly, depends more upon voters than politicians themselves. If we didn't keep asking our elected officials to fund our pet projects, we wouldn't have so much of a spending problem, would we?
So, how bad is our federal budget? Well, yet another way to look at it is to consider the hype surrounding foreign ownership of our debt. China owns 8% of it, while Japan owns 7%, and a whole bunch of other countries combined own another 19%.
Our debt has become a commodity! And a valuable one at that. After all, if purchasers of our debt didn't think we could pay it back, would they be buying it?
We used to assume that Congress worked for the American people. These days, at least as far as our debt and it's role in our federal budget is concerned, it appears that the American people are working for Congress.
We're the ones - our ideas, our entrepreneurialism, our productivity - whom our politicians are exploiting to sustain our national debt. We're the collateral for our politicians' overspending.
So, who's making suckers out of us and putting those legislators in office to begin with?