2+2=5, Or the Federal Budget

The latest Pew Poll shows that, surprise, most Americans don’t have a clue how the federal budget works. That’s okay, though, because I’m also pretty sure our elected officials don’t understand the budget either.

In our defense, budgets are complex things once you turn 18 and get all grown up. For my kids, handling money is relatively easy. Money comes in and money goes out. In large part, these are fixed things. My son gets a budget allotment from us and he works at Outback a set number of hours each week. He can estimate his income within a few dollars. His expenses depend on his personal choices. There are no long term deficits (housing), mid-term deficits (cars), and short term contracts (phones) to worry about. Recurring costs are minimal, mostly because we don’t charge our kids rent or utility costs (although we did once start charging my older son a dollar every time his shower lasted longer than 12 minutes).

Our household budget gets a bit more complex. We have fixed costs (house, car, phone, insurance) and anticipated costs (utilities, food, gas, cable). These are usually about the same each month. Fortunately, we also have a fixed income. We know within a few pennies how much money we will make every month. Obviously, that means when we buy the house, car, etc, we know how much we have to spend. We also, though, have variable costs: medical, family emergency, total inability to cook night, increased alcohol consumption (based on too many inability to cook nights), and vacations (to try to stem the previous costs). Still, all in all, we know each month how much money will come through the door and about how much will go out. We also know, though, that the income can go up and down (based on taxes, job-related issues) and the costs can go up or down (pay off the car, insurance rates). The complexity is that we do, in some way, have to plan for those contingencies, knowing we have to make some purchases based on potential future expenses.

Naturally, that means I should understand the federal budget. Except that I don’t. A federal budget has variables that seem almost infinite: it is my budget on steroids. The amount of money coming in can depend on natural disaster, terrorist attacks, consumer confidences, unemployment rates, world markets. The cost has just as many variables. Economics, I tell my son, is like creative writing with numbers. The experts are all just guessing (educated guesses for sure) but they can only anticipate. And they study this everyday.

That leaves the rest of us guessing (often not educated). Let’s start with the obvious reasons we are so confused:

1. I can’t count to a trillion (or a billion, and I have my doubts about the number of zeros in a million). The number one reason most Americans are stupid about the budget is that the numbers we discuss are incomprehensibly large. The well meaning among us can talk all day long about decreasing spending and creating efficiencies,  arguing that cutting aid to Africa and reducing the federal work force will save millions of dollars. The problem, of courses, is that aid to Africa and the size of the federal work force isn’t driving the deficit. And, hard as it is to believe, saving a million dollars (or even 10 million) is a bit like arguing that saving $10 a month will let you buy that condo in Maui. Because we don’t quite get the numbers, we keep imagining we can reduce the deficit by cutting the low hanging fruit. We can’t. There isn’t enough fruit there and we consistently under appreciate the importance of that money. Cutting aid to Africa will save us money, until the disease and disharmony requires a larger response. Cutting federal workers will save the government money, but the service they provide doesn’t end. Outsourcing simply transfers the cost. (Think of it this way–if your city outsources garbage collection, that simply means you won’t pay your city to collect the garbage. You will still pay for garbage collection, but you will pay a for-profit company. They might be more efficient by paying workers less money with fewer benefits. That short term savings becomes a long term cost in medical care, retirement, etc.)

2. Americans aren’t really ready to make the difficult choices to cut programs that will reduce the deficit. We have the greatest military in the world and we damn well should based on the money we spend. The reality is that the military-industrial complex has done exactly what President Eisenhower warned–it grows and consumes. I love freedom, and I know that freedom isn’t free, but I also know that our military expenditures have taken on a life of their own. Simply put–we must reduce our military footprint, reduce our reliance on increasingly expensive technology, and stop being the world’s police. If we aren’t willing to do so, then we have to accept an increasingly expensive military. In other words, we need to decide that we can have a less expensive version of freedom. And by all means, let’s stop subsidizing wealth for Lockheed Martin’s executives.

3. Our social programs must change. Social security is important and vital to the well-being of an aging work force. We must continue to support the social safety net for those workers whose lifetime profession didn’t include 401(k) programs, pensions, and other job related retirement accounts. American cannot be a country that abandons laborers whose jobs depend on physical abilities that fade over time, pushing them to either lower paying jobs or retirement. Doing so requires that we stop trying to treat all retirements equally. The social security age should be raised for certain professions and certain income levels. They guy down the street who runs a backhoe and digs ditches probably has a more difficult time doing his job at 62 than the college professor living in my house. More importantly, he doesn’t have an employer matching his retirement fund dollar for dollar. Index for income. We all benefit from putting money into Social Security because no one really wants a bunch of old, poverty-stricken homeless people running around. Or moving in with us.

4. Medical costs are out of control. Read Steven Brill’s Bitter Pill: Why Medical Bills are Killing Us. Let’s stop fighting about who pays and worry about why we are paying so much.

5. More revenue is not evil. Federal taxes are at their lowest levels in years but federal tax law is more confusing than a physics dissertation to an art major. We can increase revenue and stabilize revenue pretty easily if we could, and I know this is a radical concept, consider the greater good and not simply our own self-interest. Let’s start with two basic concepts: everyone pays something and we eliminate loopholes. We do this via either a national sales tax. Want to pay less in taxes, buy less stuff. The idea that the rich would reduce spending misunderstand the rich. Bill Gates doesn’t live in a mansion because he has to. He lives there because it speaks to his wealth. A consumption tax would, in fact, allow us to budget based on 10 year spending averages. If we don’t like the consumption tax, then create a progressive flat tax: 0-20,000 pays 10%; 20,000-30,000 pays 15%, 30,000-40,000 pays 16% . . . You get the idea with a top rate at 25% for those making over $5 million. No caps. No loopholes. And no whining. If you are making $10,000, put some skin in the game. If you are making $10 million, you will not stop producing or stop pushing yourself to make money to avoid taxes. You live in the greatest country on the planet and you make $10 million because you live here. If you don’t like it, leave. Go try to be rich in Venezuela.

It’s either that or let’s make that 1 trillion dollar coin. Heck, let’s make two.

Things I Read

And Things I Learned

Washington Monthly

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)

Joanne Jacobs

Thinking and Linking by Joanne Jacobs

Inside Higher Ed

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)

NYT > Politics

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)

Balloon Juice

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)

Dilbert Daily Strip

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)

The Full Feed from HuffingtonPost.com

Do I contradict myself? / Very well then I contradict myself, / (I am large, I contain multitudes.)