President Obama sent his 2012 budget to Congress and here's what we know: the President, Democratic members of Congress and Republican lawmakers seem to agree on one thing: all of them desperately want to get elected NOW, far more then try to solve the nation's long-term debt problems LATER.
We know this because neither the President's plan, nor any Congressional proposals is willing to address the elephant in the room: the 60 percent of federal spending that includes Social Security, Medicare and other entitlements. Because nobody is willing to tackle these big issues, their share of spending is set to constitute 68 percent of spending by 2021. Instead of tackling the big stuff, we are left with the President's promise to cut $1.1 trillion over the next decade (nice, but just not enough), mostly in non-defense discretionary spending (12 percent of the budget).
As a means of comparison, the bipartisan deficit commission had recommended we cut $4 trillion in order to restore fiscal discipline to the government. But doing so would include pain--both in terms of cuts to beloved programs and increases in taxes. And what politician wants to run on this platform: "Vote for me--you'll pay more, get less... but we'll all be better off in the long run!"
Instead, we get a little cut here, maybe a little tax increase there and continue to run the country's finances like out-of-control teenagers, who only want pleasure, until pain is inflicted on them by responsible parents. In the case of the nation's finances, the responsible parents are clearly NOT politicians. The most likely candidate to impose discipline is the market. Anyone remember Greece or Ireland? Politicians in those countries were forced to address their problems when investors stopped enabling their rotten habits.
As we watch the politicians kick the can down the road, we also should ask ourselves: are we really ready to make the substantive sacrifices that are required to put the nation's finances on a more stable trajectory? In poll after poll, US taxpayers say they want politicians to address the debt, but when probed further, they either don't know what benefits they receive from the government or are not sure whether they want to give up the goodies they enjoy. This has to change...but not now, later...
Here are facts about last year's (2011) budget deficit and nation's total debt:
- The President's budget is just a proposal. Now, the down and dirty horse trading begins, as Congress has to come to some consensus. The process is long (we are still waiting for the FY2011 budget!) and ugly (they don't call it sausage-making for nothing!).
- Deficit = Money government Takes In - Money government Spends
- 2011 budget deficit: $1.645 trillion (increased from CBO's $1.48 trillion estimate last month)
- 2011 budget deficit as percentage of GDP = 10.9 percent
- National debt = Total amount borrowed to fund the annual deficit
- Current national debt = $14.1 trillion (or $45,524 per every man, woman and child in the US or $127,669 per taxpayer)
- Total spending = $3.73 trillion
- 2012 Deficit = $1.1 trillion
- 2012 budget deficit as % of GDP = 7% (plan to reduce to 3.2% by 2017)
- 5-year freeze on domestic discretionary spending (estimated savings = $400B)
- Two-year moratorium for cash-strapped states to repay debt from unemployment insurance programs, followed by the ability to charge taxes on a higher payroll base
- Two-year freeze in federal civilian employees salaries, expected to save $5B
- Overhaul in Pentagon spending, expected to save $78B over five years
- More spending on education, high-speed rail ($8B), wireless infrastructure
- $2.5B in cuts to the Low-Income Home Energy Assistance Program
- $1B in cuts to large airports
- $1B in cuts in aid to water treatment plants
- Army Corps of Engineers, agricultural subsidies, Forest Service, and the Environmental Protection Agency's Clean-Water Fund are expected to take hits