Yesterday, I wrote about our national budget, the deficit (amount we spend beyond what we take in in taxes), our national debt, and the ridiculously ineffective shell game our legislators are playing, trying to convince us that saving $4 billion will somehow make a difference in our fiscal health.
Today, I’d like to talk a little more about this topic.
Let’s mention first that currently, the annual interest on our national debt (of which about 50% goes to creditors outside the USA, like China) is approximately $169 BILLION. That’s just the INTEREST on what we owe.
That means that we spend roughly 4.5% of our budget just to pay the interest on our national debt. $4 billion (the amount the government is fighting so mightily to cut from our spending) is roughly 2.4% of what we spend on interest payments on the national debt.
Frankly, I don’t know whether to laugh, cry, bang my head against the wall, or just lay down and give up.
When you spend more money than you earn, you have only a few options.
1. You can cut your spending. If you’re a family who suddenly loses a job, takes a pay cut, etc., you cut out all discretionary spending. You pay your mortgage, buy basic food, pay your utilities, but you also cut spending on clothing, vacations, new cars, eating out, and anything else you can. Maybe you start cutting your kids’ hair yourself, repairing things instead of replacing them, you turn down the thermostat to save on utility bills, etc. Perhaps you walk away from your home, in extreme cases, and move somewhere you can afford given your new circumstances. In short, you cut whatever you absolutely can cut, while not blowing off your obligations.
2. You can increase your earning power. Perhaps you take a part time job, a second job, or find a new job that pays more. Perhaps your kids take part time jobs at McDonalds to help pay the bills. This clearly is harder, usually, than decreasing your spending, but you can’t always cut enough to make it.
3. You can declare bankruptcy and start over. This is a drastic action, and not recommended for sissies. Your creditors are out of luck, and your credit will be destroyed for a long time. This is a last resort.
What you DON’T do, unless you’re really stupid or insane, is continue spending at the same levels, racking up debt on your credit cards, barely paying the minimum by shifting money from credit card to credit card by taking cash advances.
Basic financial planning tells us that the proper course of action is to cut up the credit cards, cut expenses, pay off the higher interest debt first, and work to spend ONLY what you can afford.
I have to wonder why our legislators don’t get that. What is it about spending taxpayer money that makes it ok to continue spending more than we have?
So, what’s the solution?
It’s probably a combination of the options mentioned above.
First – NO SPENDING BEYOND INCOME!!!!!
Our deficit spending ($1.27 Trillion) is about 1/3 of our budget for 2011. That means that we need to cut $1.27 TRILLION, not $4 BILLION from our budget for this year.
Clearly, that’s not realistic in the short term. We have too many sacred cows, too many people who aren’t willing to have their ox gored, and way too many special interests. But, it’s necessary.
Second – INCREASE INCOME!!!!
As much as I would hate to see increased taxes, it may be necessary. There are ways to do this without targeting any particular segment of the population. Yes, the rich have more, but they already pay more. If you took 100% of what they make, it still wouldn’t make a significant difference in paying down the debt. EVERYONE needs to share in the burden. We all benefit from government to some degree – we drive on interstates, we have armed forces to protect us, we get social security, medicaid, medicare, and other things that we can’t just stop doing.
Somehow, we have to pay for those things that are NECESSITIES.
But, there has to be a balance between spending cuts and income increases.
Doing just cuts is not enough, but it is definitely necessary. A first step would be a 15-25% cut in the budgets of ALL federal programs and departments, across the board, for the 2012 fiscal year. The howls will reach the sky, but frankly, just like in the private sector, we need to learn to do more with less. Then, do it again for 2013, and again for 2014.
In some cases, that will mean layoffs of public employees. In other cases, it will mean reductions in benefits and salaries. In hopefully more cases, it will mean implementation of efficiencies in how we do things.
There is absolutely NO excuse for our government to avoid the hard decisions and cuts necessary to streamline our expenses.
As the economy improves (as it surely will eventually), our income will rise as a natural effect of people making more money and paying more taxes. As that happens, take whatever increases we get AND USE IT TO PAY DOWN THE NATIONAL DEBT UNTIL IT IS GONE. Do not allow ANY additional spending until the debt is gone and we are not spending ANYTHING as deficit spending.
I know that this is overly simplistic. I am not an economist, a political scientist, or (thank G_D) a politician, but this is really just common sense (yes, I know, common sense isn’t common).
If the people we have elected don’t have the brains or the fortitude to do what is necessary, we have elections again in 2012. Perpetuating the same abuses and excesses of the system is not an option….