Federal Budget Deficits and Debt - The Growing Financial Crisis of the US Government

Federal Budget Deficits and Debt - The Growing Financial Crisis of the US Government

1: Explain the concept of a balanced budget.
The idea of a balanced budget is that there is more revenue coming in at a given time than expenses that are going out. In essence, as long as there is more money coming in than money that is going out then a balanced budget has occurred.
2: What is a budget deficit?
A budget deficit is virtually the opposite of a balanced budget; it is when the government is spending more money than what it receives for revenue. This debt is owed to those who lent the money to the government. For example; the deficit that is projected for the FY2011 is $1.26 trillion. In 2011, the government is projected to receive $2.57 trillion in revenue but pay out $3.83 trillion in expenditures.
3: What is a budget surplus?
A budget surplus is when the government’s revenue exceeds its spending in a given period of time. Although it is not imperative that the government sustain a budget surplus, it has to be cautious about the budget deficit because financing the deficit itself can create a burden on taxpayers from the interest rates alone. Instead of revenue being used in more productive manners, it can end up being used to simply finance the debt; interest rates need to be in proportion to the amount of income that is coming in.
4: How does the government cover its deficits in any one year?
The way the government covers its deficits in any given year is to borrow money from the Federal Reserve. The U.S Treasury achieves this through numerous avenues such as securities or IOU’s like savings bonds or treasury bills, notes, and bonds. Lenders are willing to lend based on the incentive of the interest it will receive in return; the government pays the borrowed money back by taxing the American people. It’s interesting to note that since 1969, Congress has spent more money than its annual income.
5: What is the national debt and how much is it? How fast is it growing?
The national debt is the sum of all outstanding debt owed by the Federal Government. Currently, the national debt is $12.86 trillion dollars and rising. Today, the rate at which the national debt is growing is $4.12 billion per day!
6: Explain the difference between budget expenditures for entitlement programs and expenditures for discretionary spending.
Budget expenditures used for entitlements programs are revenue used by the federal governments that make mandatory eligibility for programs such as Social Security, Medicare, and Medicaid. It is illegal for the government to not issue money to eligible recipients. As people begin to grow older, baby boomers gear up for eligibility of Social Security and the unemployment rate of the United States continues to hover nears double digits; the government has started to dole more money out for entitlement programs than it is taking in for the revenue designed for the programs themselves.
Expenditures for discretionary spending are money that is negotiated between both the President and the Congress; it includes anything that is not part of the U.S Federal Government mandatory budget. The two largest programs of discretionary spending include the Department of Defense and Homeland Security. Other large recipients of discretionary spending entail Health & Human Services, Education, Transportation, and Agriculture.
7: Explain at least two strategies that are available to the President and Congress to attempt to shrink the annual budget deficit.
The two main strategies available to the President and Congress to try and reduce the budget deficit are to raise taxes, cut spending, or to do both simultaneously. Raising taxes on Income, Social Security, and Medicaid have been used in the past. In 1993, Bill Clinton and Congress raised revenue on the top 1.2% of wealthy Americans, established rules on discretionary spending, and extended the “pay-as-you-go” rule for any kind of government spending. With these new spending cuts and tax revenues, coupled with a booming economy; it reduced the national deficit by over $600 billion. Based on history, it appears a fine balance of both raising taxes and reducing spending is an effective way to decrease the national deficit; however, if the economy is in a stalemate, many of the government entitlement programs such as unemployment and food stamps can diminish the effectiveness.

8: Explain annual budget increases for government expenditures due to inflation.
When inflation occurs, which is the decreased value of the American dollar, the prices of all goods and services goes up in coordination. Naturally, as the price of goods and services ascend, so do the revenues that the government employs on its taxpayers.
9: Describe the current trend in budget deficits and the prospect that the federal budget will be brought into balance in the next ten years?
The current trend in budget deficits is $4.13 billion per day since September 28, 2007. The prospect of bringing the federal budget into balance in the next ten years is a daunting challenge. If the United States wants to exhibit a strong message to financial markets and the world that we are dedicated to reducing our national debt then it’s imperative we implement a plan, integrated with benchmarks along the way, that propose, with specificity, how we will accomplish this. President Barack Obama has appointed a bipartisan commission consisting of 18 members to address the debt problem. By December 1st, 2010, it will propose a fiscal plan to trim the national debt. This is just one of the ways in which the President will try to get the United States back on track of attaining a balanced budget.
10: Why is the continuing increase in national borrowing increasing rather than decreasing deficits in the federal budget?
Although national borrowing is providing money in the interim for expenditures, the interest rates on such massive volumes of debt owed to other countries and lenders is beginning to supersede the entities for which the federal government owed to begin with; this is why our national debt continues to grow. Today, the United State’s interest on debt is our fourth largest expenditure at over $193 billion; something seems terribly wrong here. Our debt held by foreign countries is $3.8 trillion; China owning over $800 billion themselves alone. It is conceivable that the interest expense on our national debt alone could become the largest expenditure on the budget!
11: If left unchanged, the combination of Medicare, Social Security, and Medicaid will consume the entire federal budget by 2070 when most students will have retired. That means no money for national defense, education, national parks, and other discretionary programs. By far, Medicare will take most of the money. If you were running for a seat in Congress, what would you propose to bring these entitlement programs under control and made affordable for the government?
If I was running for a seat in Congress, I would present to the voters a process. First, I would identify money being taxed compared to where it is being used. For example, if there was a tax to build a road, I would ensure that money would be used to build that road, period. Or if money is taxed for Social Security/SSI; I would only allow it to be used for Social Security/SSI. The books need to be straight before any budgeting can begin. Consider the Iraq War; unlike WWII, where Americans did things such as purchasing war bonds that paid for the war directly, the Iraq war it has lingered on since 2003 with no direct funding. I would envision that if the American public been directly taxed for the war, it would have long since been over.
The problem of Medicare, Social Security, and Medicaid is not that they are necessarily unsustainable; the issue may be is that the government is using the money appropriated for these entitlement programs on other unintended discretionary spending; i.e.; the Iraq/Afghanistan war. In essence, these programs, in large part, are being used as a massive tax collection tool. If the federal government was truly using the revenue it received designed for these entitlement programs I think they could be sustainable; they might even have a surplus. The fact is, however, there is no trust fund. The “trust fund” simply consists of IOUs which are now part of our national debt.
It doesn’t take a rocket scientist to do the math; since 1935, the government has been collecting revenue for Social Security. Today, there are roughly 300 million people in the United States. Theoretically, if the federal government taxed every individual $1 daily for SSI, the U.S Treasury would collect $2.1 billion in just one week, or $109 billion every year; and that’s just at $1! Realistically, the government taxes individuals far more money than $1 per paycheck. Last week, I was taxed $55 for SSI from my tiny little check alone. So the question is, “where is all the money going”? Before any kind of budget proposals can even be made, we have to see what money is coming in and WHERE it’s going. My proposal to voters is that I would bring transparency and accountability to government spending.
This is why I personally believe many Americans were SO apprehensive about the new health care legislation that President Obama proposed. I think most people agree that no one should go without healthcare; however, I think most are also not comfortable with the idea of the government totally overhauling the system; many (including myself) are dubious that adding 30 million people to the health care roles can truly be done budget neutral.
Hopefully us doubters will be proved wrong!
12: President Obama campaigned on the promise of eliminating the Bush tax cuts for the wealthiest Americans. The tax cuts cost the US Treasury nearly $2 trillion. What is your opinion of Obama’s proposal? If you were in Congress, how would you vote?
If I was in Congress, I would vote to end the Bush tax cuts. Democrats want to cut the Bush tax cuts to help lower the budget deficit; this would raise taxes on those making $250,000 or more. Although this sounds like an ideal plan, I am doubtful that the budget deficit can be dented simply by taxing the wealthier people in the country. Barack Obama campaigned on the pledge he would not raise taxes on the middle class, conversely, it doesn’t seem feasible to me to avoid raising taxes on the middle class. The middle class is responsible for the largest portion of the United States GDP; in my opinion, it is highly unlikely that Mr. Obama can keep his promise of not raising taxes on the middle class; the United States cannot solely bank on the higher income bracket to pay for the entire budget deficit.
13: If left at current levels, federal spending as a share of Gross Domestic Product (GDP) will increase from the current 20% to approximately 28% by 2035. The three largest elements in the budget are the entitlement programs (Social Security, Medicare, and Medicaid), Defense, and interest on the national debt.
A) What would you recommend to the President or a Member of Congress to bring annual government spending under control?
The first thing I would recommend to the President or a member of Congress to bring annual government spending under control would be to seriously look at the unnecessary discretionary spending. My initial suggestion would be to withdrawal from Iraq and Afghanistan; we have been there way too long. As redundant as it sounds, I think the United States has actually become more susceptible to terrorism by continuing to languish in the Middle East trying to blindly fight terrorism; a weak U.S economy makes Americans extremely vulnerable.
Secondly, I would fervently look at developing and implementing clean alternative sources of energy such as hydropower, solar, wind, and geothermal energy. Not only would this aid in the rise of unemployment by promoting job creation within the United States; it would eliminate any interest for the United States to be tied to oppositional foreign countries who supply us with oil. We could save hundreds of billions of dollars getting out of wars revolving around oil investments and use the trillions of dollars we spend on fossil fuels each year towards these fresh energy alternatives. Most importantly, it would eradicate any reasons to be at war with these malignant oppositional countries. Clean energy is appealing for a whole host of incentives; budget control being one of them.
The United States is home to the largest GDP on the global economy; why is the world’s number one economic powerhouse the prevailing consumer (by far) of an old technology in fossil fuels?? We need to be revolutionizing the energy industry and setting new world standards and competitiveness with high-tech modern means of energy. Imagine a world of an energy source that didn’t encompass all of the extraneous pollution and political strain that oil causes.
Finally, an enormous issue that I feel needs to be addressed is illegal immigration; I would highly encourage the President to invest time into this hot topic. Our Mexican border either needs to be sealed off or freely opened allowing an open pass to anyone who wants to enter the United States; the lukewarm approach is killing us. Today, over 12 million+ illegal immigrants are estimated to be residing in the United States and have been reported to cost the federal government more than $10 billion annually. An amnesty approach would put these individuals on the taxpaying rosters over night; If we aren’t going to enforce borders, we should offer these people an avenue to citizenship.
Conversely, This whole notion that the United States cannot put up a wall on the Mexican border to protect our borders from being trespassed is comical. The United States touts the largest public works project in the world with the Interstate Highway System which spans over 43,000 miles. The highway itself IS a wall; and the government is going to tell people it can’t seal the border? Bottom line; America is letting illegal’s cross our borders because they provide immensely cheap labor; way below the minimum wage. Of course illegal laborers do not complain about the low labor wages for numerous reasons; even at low pay standards in the United States, the earnings in America are infinitely superior to those in foreign nations. Additionally, laborers will work for low wages in exchange of their employer protecting their illegal status and providing them false identification and Social Security numbers so they can live in America. To put this entire issue on the illegal immigrants would be a huge disservice to the debate; both illegal aliens AND American employers are guilty of these transgressions.
If American prefer order enforcement over amnesty, then I would suggest to Congress or the President to build a wall that spanned the entire United States/Mexican border. The cost to build the wall would pay itself off almost immediately. Estimated costs to build a concrete wall spanning 2,000+ft. that would eliminate any sliver cracks for illegal immigrants crossing the border to smuggle drugs, utilize American services or provide an entry way in for terrorists are anywhere from $4-$8 billion; costs could be as low as $1.2 billion if an electrified 10 ft. high prison fence with razor wire at the top was used instead. Furthermore, if we want to safeguard the effectiveness of the fence, the government needs to put the heat on employers; in 2005, Wal-Mart was fined just $11 million for employing hundreds of illegal immigrants, that’s like a slap on the wrist for Wal-Mart. The fines should be hefty enough to deter employers from even contemplating the benefits of hiring illegal immigrants.
Clearly, the cost to build this fence is infinitely cheaper than the annual amount of money the federal government loses allowing people to cross illegally. I think these figures speak volumes; this means Congress is not sealing the border because lobbyists are whispering in their ears to not fund a wall because they would lose money paying American workers.
B) Would you cut discretionary expenditures such as Homeland Security, agriculture, veterans, housing, space, and national parks? (For the past 40 years discretionary spending has never dropped for a sustained period. What dropped was the rate of increase which in some years was merely an amount to keep up with the annual rate of inflation.)
Again, I strongly advocate that it is nearly impossible to begin budget cuts on discretionary spending until we know WHERE our money is going. A gigantic floodlight needs to be cast upon the Congress so we can watch all the cockroaches scatter; in other words, Americans need to know who’s working for them and being truthful and who is not.
My belief is that the war in Iraq/Afghanistan is the prevailing cause of the economic recession the United States is currently in. In the fall of 2008, Congress issued a $700 billion bailout for the banking industry; almost identical to the total cost of the war, which is around $666 billion. In my opinion, I do not think there is any coincidence that the amount of the bailout bill was similar to the debt of the war. I am by no means denouncing the atrocities that the banks did with gambling people’s money; but I think these kind of banking indiscretions predated the war and are something that need to be addressed independently; the primary financial hemorrhage that needs to be stopped are the wars.
Our Congress, both Democrats and Republicans alike, were intelligent enough to forecast that an unfunded war in the Middle East would easily skyrocket into hundreds of billions of dollars. Had George W. Bush and the Congress asked the Americans to purchase war bonds and/or pay directly for a military response after September 11, 2001; my guess is that people would have been very willing to do so. However, I also feel that the American people would have stipulated that we get in and get out within three years tops. Instead of hiding war expenses from the American people; Congress and the President should have simply been upfront with the taxpayers, instead, we were deceived year after year, and to add insult to injury; it’s all been on our tab.

C) In view of the Economic Stimulus/Jobs measure, TARP program for distressed banks, AIG, and government support for the auto industry to try to get the American economy healthy again, do you think these expenditures are appropriate given the size of the budget deficit?
Regardless of an economic recession or budget deficit, I think bailing these companies out is a terrible idea; they are classic examples of white collar crime. Why should the American taxpayers be penalized for the bank’s fiscal irresponsibility? More importantly, why are these entities so massive that they are “too large to fail”? If that’s truly the case, then I sincerely believe these companies need to be broken up; that way companies can be held accountable for not meeting their reserve requirements. Fannie Mae/Freddie Mac received $400 billion, AIG more than $180 billion, Citigroup $280 billion and Bank of America $142 billion. These figures are mind boggling.
Regarding the auto industry, GM & Chrysler received nearly $14 billion, more than a fourth of Maine’s GDP in 2008. Ironically, their fellow American competitor Ford did not receive any money from the federal bailout. I look at this through a very primitive lens; Ford didn’t require a bailout because they offer a better product than GM and Chrysler, hence, makes more money. Don’t forget, this isn’t the first time Chrysler has been bailed out by the government. GM and Chrysler should not have been bailed out; just like the millions of people who had their homes foreclosed on in this economic turn down, these giants should have felt the pain as well.
As a final point, what is the incentive for the fat cats on Wall Street to stop gambling our money on risky corporate loans and mortgages if they know that the government will back their company if they were to fail? I think bailing out companies with incomprehensible amounts of money takes me to my next question; where do taxpayers draw the line where companies need to simply fall if they cannot stay afloat without the taxpayers holding their hand every step of the way? If these giant banks are going to be bailed out, at a bare minimum, the CEOs and employees who were the ringleaders of these criminal schemes need to be put in handcuffs. Perhaps the elite on Wall Street wouldn’t try to pull the financial schemes that they did if they knew their freedom would actually be in jeopardy.
The plan that Barack Obama is going to bring “Wall Street Reform” to Washington D.C is an excellent in theory, but again I’m dubious; as with many elected officials, one of Obama’s largest campaign contributors was Goldman Sachs whom gave him $1,007,370 (nearly seven times the amount Enron gave Bush); how disturbing. Hillary Clinton, Obama’s Secretary of State, received over $415,000 herself. Additionally, JPMorgan Chase & Co gave him $695,132, and Citigroup Inc $701,290 (both of these banks were bailed out). How can any true reform be trusted if our own officials, (of both parties) are so deeply funded by Wall Street? It is my belief that if President Obama wants to be a sincere agent of change he will be well served to return all corporate donation; he will then truly be in the driver’s seat to change Wall street. Realistically though, it’s terribly expensive to run a national campaign, it’s probably irresistible to not take money from these giant financial institutions. I may be too cynical, but when I look at Washington D.C in general, it appears inextricably tied to large corporations and high powered CEOs.

D) Do you think the government should spend money to try to relieve unemployment and get the economy moving again? If so, how should these programs be paid for?
Yes, I think the government should spend money to try and relieve unemployment. Even though I believe the primary underlying reason for our debt and economic crisis was caused by sustained, unfunded spending on overseas wars, complaining about that won’t change the fact that millions of Americans continue to be unemployed and millions of Americans continue to lose their homes. Printing and pumping cash into the economy does run the risk of causing inflation; however, employment, shelter and nourishment are among the most basic needs. Once people begin to start working again, hopefully the economy will boom and become robust enough to pay back the bailout money. Even if the economy does not bounce back, the Government still needs to address unemployment; essentially, we should demand of our Government to address unemployment for as long as there is unemployment; it’s our Government; why not craft it to support our most basic needs? I’m not suggesting eliminating personal responsibility; I’m saying that when American Citizens are in need, our Government should be able to help as needed; especially in our current condition, where, as aforementioned, I believe, our economic crisis was in great part, instigated by actions of our Government to begin with.