Like many other people, I am unhappy that the Trump
administration proposes to reduce or eliminate federal funding for things like the
Arts and National Parks, among other things. But it has gotten me thinking
about priorities. For decades now the US government has been spending more than
it takes in, so that by now we have a national debt of more than $20 TRILLION
dollars, more that the entire yearly GDP of the whole nation, and future obligations
(Medicare, Social Security, Government pensions, etc) are estimated at about
$127 TRILLION, far more than we can ever hope to pay out. Steins Law applies here; "If something cannot go on forever, it will
stop."
Clearly as a nation we have been spending well beyond our
means. There are lots of “nice to haves”, including the Arts and National Parks,
but can we really afford them? It seems
to me the way to answer that question is to rank government activities in some
sort of priority order, and then go down the list until we run out of annual receipts. Anything below that line, however nice it
would be, simply doesn’t get funded, unless we, the voters, are willing to
accept tax increases high enough to move the cutoff line further down.
Let’s start by taking stock of where we are. There is a good
site here
that provides the figures. Here is the distribution of Federal spending for
2015:
The first thing that just pops out is that REQUIRED spending
(Blue Interest on Federal Debt and green Mandatory spending) dominates. In 2015 the Federal government took in $3.18
trillion dollars in taxes and fees, 81% of it from income taxes and payroll
taxes and 11% from corporate taxes. How
much does that cover?
$229 billion (6%) goes to pay interest on the national debt.
$2.45 trillion (64.6%) goes for mandatory spending. Social Security
accounts for about half of that (48.5%) and Medicare most of the rest (38.4%).
That leaves half a trillion dollars ($527 billion to be more
accurate) in income to cover $1.11 trillion in discretionary spending, which
includes the military (about $600 billion, or 53.7% of discretionary spending),
and we haven’t even allocated any money to pay back the debt.
Clearly something has to give. We can’t keep spending more
than we take in forever. One solution, of course, would be to raise taxes
enough (about 20%) to cover the deficit,
Or we could eliminate all tax breaks (worth about $1.22 trillion),
which would more than cover the discretionary spending and even put a little
aside to begin to pay back the debt.
So now let’s rank spending in priority order. Everyone will
have their own priority order no doubt, depending their passions, their
politics and their ideology. But let me suggest an order for at least the top of
the list – the most important stuff the government ought to or has to fund - that most of us might agree on. As I have argued before, the economy is the
engine that drives and funds everything else, so it gets top billing in my
list. Here is my suggested starting priority list:
1. Debt
obligations - interest on the debt and pay down the debt. We must do this.
2. Infrastructure
repair and updates – essential to the economy
3. Basic
science – essential to the economy (~3.5% of discretionary spending)
4. Transportation
– essential to the economy (~2.7% of discretionary spending)
5. Social
Security – but reduce payments and increase payroll taxes
6. Medicare
– but reduce payments and increase contributions
7. Military
– (a) to keep us safe, not from terrorists but from full-scale war, and (b) to
preserve the economy. I’ll talk more
about this in part II of these blogs.
That’s it. Those 7 things, more or less, will eat up all the
current annual federal receipts, and at that it includes touching the political
third rail of Social Security and Medicare. Pretty much anything else is a “nice
to have but we can’t afford it” unless people are willing to pay a lot more
taxes.
That is reality.
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