Why Cuts Won’t Cut It

August 22, 2011

When we spend more than we bring in, there are two basic ways to deal with the resulting budget deficit. We can adjust expenses and we can adjust revenue. In an effort to argue for spending cuts only, many elected officials spout the classic talking point – “We don’t have a revenue problem, we have a spending problem”. While there is no doubt that we need to evaluate spending more carefully, spending cuts alone cannot realistically get us to our goal of a balanced budget.

Budget basics

Detailed reports from the White House Office of Management and Budget (PDF) show that in fiscal year 2011 we had $2.174 trillion in revenue and $3.819 trillion in expenditures. This means that we had a $1.645 trillion budget deficit (i.e., difference between what we spent and what we took in).

Mandatory expenses exceed our revenue

There are two types of expenses in the federal budget – mandatory and discretionary. Mandatory expenses, as the name suggests, take priority and must be paid. The mandatory expense category includes social security, medicare, medicaid, other mandatory expenses (e.g., federal retirement pensions, disability benefits, veterans benefits, unemployment benefits, food stamps and family assistance) as well as interest on the national debt. For fiscal year 2011, these mandatory expenses alone totaled $2.382 trillion. This means that paying only these mandatory expenses already puts us in a deficit situation ($2.382 trillion in mandatory – $2.174 trillion in revenue = $208 billion deficit before discretionary spending).

Paying for defense

If we accept the premise that we cannot look for more federal revenue, paying for even one discretionary budget item becomes nearly impossible. The largest discretionary budget expense is defense/security at $891 billion in fiscal year 2011. If we wanted to pay these expenses, not raise revenue, and have a balanced budget, we would need to reduce mandatory expenses to $1.283 trillion from their current $2.382 trillion.

How the numbers stack up

$2.174 trillion (total revenue)

– $891 billion (defense/security)

———————

$1.283 trillion

– $205 billion (interest on national debt)

———————

$1.078 trillion

– $727 billion (social security)

———————

$351 billion

– $488 billion (medicare)

———————

– $137 billion (deficit)

The only costs addressed in this example above are social security and medicare for current recipients, interest on the national debt, and current defense/security expenses. We cannot even do these four things without getting into a deficit situation. Even if we were to dramatically cut the defense budget by 50% or more, we still wouldn’t come close to covering all of our mandatory expenses. Keep in mind too that while we may be able to find cuts in some areas of the budget, three of the four areas above are generally not viewed as areas in which we can make any cuts as we don’t want to default on our debt or pull the rug out from under our seniors by cutting their benefits.

The math speaks for itself. There is no way to get to a balanced budget without additional revenue. We have our work cut out for us and moving toward a balanced budget must be a long term project. But, if you look at the facts, it is obvious that there is no way to reach our goal without both spending cuts and substantial new revenue.

The blind leading the blind

When Congress reconvenes in September, the newly formed bipartisan committee will begin its work attempting to develop a plan to address our ongoing debt and deficit issues. What is saddening is that both Senate Minority Leader, Sen. Mitch McConnell, and Speaker of the House, Rep. John Boehner stated that they intentionally appointed members to the committee who are against any new revenue. Unfortunately, this has virtually eliminated the possibility of a real solution for America unless someone can show these committee members the light and help them to see the necessity of looking at both sides of the equation. What is even more disappointing is that this is not rocket science. Any reasonable person looking at the numbers above can see we must have more revenue to make this work. I don’t know how some of our elected officials can be so blind.

Conclusion: Saying we can balance the budget through cuts alone is BS.

  • Jabo

    It boggles my  mind that supposedly “intelligent” people cannot see the truth of the facts as they are stated above.