Can We Pay Off Our Nationa Debt or Balance Our Federal Budget?

The news is full of reports on how large the National Debt has become - i.e., $16 Trillion. What can be done to eradicate this amazingly large debt - or even balance our current federal budgets?

Right now, in a word, "NOTHING!". The explanation for this answer is below. Unless we, as a people and as a nation, are willing to radically change how we "do business" we seem to be trapped financially. This means we all have to change - the federal government and how it spends and all of our expectations and dependencies.

Just what does 16 trillion dollars mean to persons like you and me? Well, if you made one million dollars a month, 16 trillion dollars would enable you to get paid that one million dollars a month for 1,333,333 years. Yep, that's quite a lot to owe.

This offering is not a piece that demonizes any political party or person. The policies and expectations that have gotten us to today's financial point have been going on for decades, across all political lines.

To illustrate this, the following data (facts) are offered:

First, take a look at the changes, especially the rate of change (or "slope"), in our national debt since Gerald Ford left office (1976).

During this period every (repeat every) presidential administration has effected a rise in the national debt. What is worse, perhaps, is that the increases in debt are occuring at a faster and larger rate.

The same data is presented here in tabular form for greater detail and clarity.

The problem, simply, is that we spend more than we take in (DUH!). The only administration that has produced a surplus in the annual budget is the Clinton administration - and, the national debt under Clinton still went up by almost $1.5 trillion dollars. See the next picture below for the annual budget deficit / surplus over time.

Since Carter took office the annual operating deficit has risen by 1,792% while the national debt has risen by 2,418%.

Think what financial shape you would be in if every year you spent 154% more than you earned. Since (to many of us) dealing with numbers in the trillions tends to make our eyes glaze over, this picture will give you an idea of what current federal deficit spending would mean scaled to the average income earner in the US.

So, if we "balanced the budget" that would be a start - RIGHT?. OK. Well, just what does that really entail - other than the obvious (spend less than you make), I mean?

Let's take a look at balancing the current federal budget:

I want to stress, again, that the current problems should not be traced only to Obama, Bush, or any prior president including FDR. They all are at fault, along with the various congresses that brought forth, voted for, and otherwise promoted laws that advocated operating at a deficit. We, as a nation, are now in a hole that will be extremely difficult to fill. I believe we are in for a major shift in the financial paradigm of our lives. To solve our financial problems will be "rough road to hoe" for all of us.

The thing that prompted me to generate this missive is a video I saw the other day discussing whether we can balance our national budget. (To see this video, click on the link to the right: Click Here.)

Finding the info in the video to be UNBELIEVABLE, I did my own analysis using the White House's web site for the 2012 Federal budget. My results are the same as that presented in the video:

Of course, the difficulties of the 2012 budget only serve to further increase the National debt. If, in fact, we can't balance our current budget, paying off the National debt is extremely problematic. And remember, balancing the budget does NOTHING to pay off our debt. It simply allows us to pay ONLY the interest on our debt without incurring more debt. We'll still owe the principal.

Obviously, we, as a country, need to spend a lot less and take in a lot more. Easy to conclude, VERY hard to do. Consider (from the above chart), our obligations to debt interest and "mandatory" expenses, by themselves, are more than we take in. "Mandatory" expenses are things such as Social Security, Medicare, etc.

Offered solutions run the gamut from "Tax The Rich" to "Cut Social Security" to "Cut Medicare" to "Stop the Spending". None of these will "get us there" by themselves. But, where to start? First, let's look at some realities:

(1) "Tax the Rich" -

Taxing the rich seems to be the byword of many these days. But, exactly who are the rich? If you make the average salary in the US you make $47k per year. I would guess if you knew someone who made $300k per year you would think them rich. Believe me, having made more than twice that, it "ain't" rich - comfortable maybe, not rich. Rich seems to be the person who makes significantly more than you do - independent of your earnings.

All that aside, let's take a look at some data. The below chart is offered up for thought relative to just this year's budget.

Obviously, any consideration of a "Flat Tax" to cure our financial problems is out of the question - at least for any single given year. Not even the "rich" (whoever they are) can afford or would relish a tax rate of 62%. Any solution must be a careful and gradual fixing - over a long period of time.

Looking at the situation from a personal perspective, it's easy to get into deep debt quickly. But, it takes "forever" to regain control. The federal government is no different.

Now consider that some 49% of our citizens pay no income tax at all.

That, of course, means that the higher 50+% pay it all. Not exactly fair, to be certain. Tax the rich? The rich and those somewhat less well off are already paying the costs of services offered by the government to the lower 50%. Further, with our progressive income tax system the more you make the more you pay - not just in dollars but in % of income as well. And, finally, if one does the math, as they say, taxing the rich will not get us there - not even close. A much different approach (or approaches) is necessary. More taxation is not the answer - increasing revenue in ways other than simple tax increases and decreasing spending is.

It seems that our president's "taxing the rich" plan may be summed up with:

(2) "Cut Social Security", "Cut Medicare" -

For discussion purposes I'm lumping Social Security and Medicare together. Most of us over 65 rely on Social Security (SS) to be there for us. Further, most have expectations that SS will be there for us. A totally reasonable expectation since SS is a "forced contract". We never had a choice to participate in SS or not. Therefore, the argument that the Federal Government OWES SS payments to us is a valid one, indeed.

So, if the goverment decided to "default" on their obligations re: SS, I hate to consider the ramifications - socially, politically, and for public safety. Reductions in the level of SS payments also is an obvious option. For those of us who don't NEED the TOTAL of our SS payments to exist, a reduction would likely have the effect of people being angry, feeling betrayed, etc., and not too much more of a critical nature. Reductions to those who really NEED all of their SS payment just to exist would be catastrophic to them.

There are those who argue that SS is, in fact, unconstitutioal. Legally they are wrong, from a strict view of the Constitution they are correct. FDR, through extortion and threats, forced the Supreme Court to declare SS constitutional. (Click here for the background on this.) However, constitutional or not, we have SS as a forced contract on all who are employed here. The only recourse may be to terminate the enrollment for anyone newly entering the work force and continue to fulfill our obligations to those on SS until "the payments are no longer needed".

But, since SS relies on those working to fund those receiving the benefits, how would current obligations be met? This is the basic definition of a "ponzi scheme". Had the government not "dipped into" the funds set aside for SS then the "ponzi scheme" accusation would not apply - but they did and continue to do so.

As Yul Brynner said in "The King and I", 'Tis a puzzlement.' And, as Fats Domino sang, "Ain't That a Shame".

(3) Stop the Spending -

OK. This sounds great. But, what spending shall we cut? The Military? Social Security & Medicare? Exactly what? Yes, I know what really is meant is to reduce spending. But, the same questions apply. Reduce what, how much, and when?

What Can Be Done?

I believe that many changes need to be made - continuing, small changes over a long period of time with an American citizenry fully behind recovery. It's relatively easy to propose immediate, drastic cuts to the Federal budget. However, as stated in Newton's Third Law of Motion, "For every action there is an equal and opposite reaction."; anything we do has a consequence.

For example, let's say we decide to totally eliminate the Department of Homeland Security, including the TSA. Many would argue they are useless organizations repleat with corruption and inefficiency. The many would be correct. However, this organization currently employs over 200,000 persons. What do the 200,000 do for a living the day after we fire them all? Go on unemployment and/or "relief"? Yes, probably - at least in part. The jobs that are done currently by the people in Homeland Security could be assumed by the FBI, CIA, etc., i.e., where the jobs belong anyway, and some of the fired people would be needed by these other agencies. This would be some relief to our budget issues but not nearly enough. Of course, this would still leave thousands and thousands unemployed. So, what do you do with them?

The same would apply to any government agency we decide to immediately eliminate. As an interesting aside, check out the list of current government agencies that spend our money - the list is so long they had to offer the list by separate alphabetic listings:

Click here for a list of federal departments and agencies

Speaking of federal agencies, the GSA recently has come under fire for extravagances - trips, bonuses, etc. See this news clip on this subject. I would be surprised if the GSA were the only agency guilty of such financial abuses.

My professional background was in the management of Aerospace & Defense systems. As such, I clearly don't have the applicable experience to solve such a monumental set of problems. However, here are some suggestions to consider:

(1) The Increase of Federal Revenues -

Obviously, the more people who are working the more income tax derived. This should be the primary goal of anyone in political office. Since the "official" recession began, employment, especially in the private sector, has suffered greatly. The following government reported chart demonstrates how unsuccessful the current "recovery" process has been:

Again, obviously, whatever's being attempted isn't working.

But, in addition to increasing employment, other revenue increasing activities are available and should be exercised:

(a) Conduct a through analysis of where tax fraud exists and eliminate it. As examples, there are reports detailing how illegal aliens / undocumented persons (and others) are "scamming" the tax system to the tune of 4 to 8 billion dollars a year. To paraphrase the old joke: "4 to 8 billion here, 4 to 8 billion there - pretty soon you're talking about real money." There are 2 videos here. The first details fraud via Child Tax Credit. The second details fraud via the Earned Income Tax Credit (not just illegal aliens benefit here). (Click Here to see the Child Tax Credit report.) (Click Here to see the Earned Income Tax Credit report.) As an aside here, apparently the Social Security Administration does NOT want things to change because illegals contribute to SS but can't get any benefits - legally. So, without the illegals the available SS funds would be even less.

(b) Keep the current tax rates unchanged - individual and corporate. But, eliminate all deductions except the deductions for home mortgage interest and business overhead. The reason for the mortgage interest exception is rather simple. If one thinks the recent crash of the housing market was bad, try and remove the deduction for mortgage interest. The reason for the business overhead exception is obvious - if the business takes in $500k and the costs for doing business are $400k, the real income is $100k.

As an aside here, we should obviate the Community Reinvestment Act (title VIII of the Housing and Community Development Act of 1977) - CRA. This one Act, supported and advanced by all adminstrations since it's adoption, is the single "smoking gun" that caused the eventual burst of the housing bubble. Government agencies basically forced banks to give loans to those who could not afford them. And, afford them they couldn't - hence the eventual housing crash. A basic rule for the government and for us should be "if you can't afford it, don't buy it!" The greedy took advantage of the forcing of loans, selling off the loans at significant profit to themselves with distasterous results for us.

(c) Institue a National Lottery. (Click Here to see the Concept.)

(d) Institute a minimum income tax for all (rate to be determined). It is unconscienceable that almost 1/2 of our people pay no income tax whatsoever. These people derive the same "benefits" from us having a government as everyone else. They should pay SOMETHING.

(e) Increasing the number of employed, obviously, will increase the tax revenue. So, one thing that can be done is to allow many who are here illegally doing work to continue to do so legally. Of course, this requires some "enhancements" to our immigration policies. Clicking here will present one method to reform our immigration policies.

(f) Scrap the current Health Care Law and replace it with a more cost effective approach - an approach which will raise employment, thus increasing federal revenues, while reducing the costs of health care to all. (Click Here to see the a Proposed Concept for Just Such an Approach.) In addition, the new law doesn't take effect for another 18 months and already the estimated costs of its implementation have much more than doubled since the original, advertised projection of $900 billion. Imagine what the estimates will be when it actually takes effect! Oh wait! The CBO (07.11.2012) has given us an insight:

(g) Bring back the jobs from overseas. This will dramatically increase employment here, thus raising yet more federal revenue. But why would a company want to do this? Clearly, overseas labor costs are far lower than here. We would assess penalties (i.e., tax add-ons) to companies for any job that could be done here but is not due to the choice of a company. Accusations of "restraint of trade" would ensue. Too bad, too sad! These penalties would go directly to reduce our debt, NOT to cover any budget underfundings. Yes, many of these jobs might be viewed as "beneath" many who are on the unemployment dole. Again, too bad, too sad! Should an individual refuse to accept one of these positions for which they are able, all unemployment benefits would be withdrawn.

(h) Open up the US for the production of oil, natural gas, coal, shale oil, etc. Not only would this make available tens of thousands of jobs directly, it would lower the cost of energy here significantly. There are corporations who have found that the energy costs here are too high and have moved their operations outside the US. With significant drops in energy prices they would be enticed to move back. Or, more jobs = more federal revenue.

This Document Is Still Being Developed