We are Screwed

I think it is helpful to put the US budget in smaller numbers so it is easier to understand how screwed we are. Imagine your household made $24.5K last year. Based on the past five decades of experience or so, you figure that if you squeezed and scrimped really hard and took a second part time job you could get that income stream up to around $30K, but that would be a historic high. You also anticipate a 2% raise next year.

Meanwhile, the household spent about $4.5K on interest payments for debts, $7K on fixed expenses like food/housing which are really hard to cut, $8K on medical bills (also hard to cut), $7K on security & insurance & car payments, and $11K on everything else for a total of $37.5K going out.

That means the household had to borrow around $13.5K to pay the bills, running the total household debt up to around $160K. That is how screwed we are. It is basic math at this point.


All these numbers are easily verifiable; $1000 billion = $1 trillion, and all I've done is convert the figures from, for example, $2.45 trillion of tax receipts to $24.5K.  I did round a bit.

What does this mean going forward?  Well, imagine that this was your household budget.  You have a $13.5K gap to cover.  What would you do?

• First off, you'd take the second job immediately.  The budget problem cannot be solved on the spending side alone.  That means jacking total tax revenues up to the maximum we've seen in the post-WW2 era.  That obviously will have broad impacts on the middle class; you don't jack up total receipts to the highest they've been since WW2 by just hitting the top "1%."  INCOME:  $5.5K.
• You cut the "easy stuff" by at least a third.  Going out to eat (Department of Ag), the summer vacation and your landscaping (the National Parks, and, heck, the entire Department of the Interior), the foreign exchange student you planned on hosting (the entire State Dep't) -- anything that is discretionary.  SAVINGS:  $3.5K
• You cut the "hard stuff" by at least 10% total.  That means scaling back on medicare/medicaid, social security, and defense.  They make up roughly equal chunks of the budget so you can mix up the cuts however you want; for example, one could cut defense by 30% and not touch the others.  SAVINGS:  $2.5K.

To your dismay, even after all that coupon-clipping and belt tightening, the household budget is still showing $2K in the red for the year.  Oh, and, your accountant tells you that all that "hard stuff" is projected to INCREASE in cost, significantly, not to decrease, so if you don't touch the medicare/SS part of it you'll need something like a 50% cut in DoD.  If anyone thinks that you can ratchet up tax revenue collection to historic highs, or that we'll see a ONE THIRD across the board cut in discretionary spending, you're smoking something they now sell in Washington and Colorado.  Oh, and you and your spouse (the opposing political party) strongly disagree with everything each other wants to do and will obstruct any effort to change anything.

Moreoever, based on the recent election it is absolutely clear that the people will not tolerate broad spending cuts.  They have no appetite for it.  Finally, consider that federal spending is only about half of all gov't spending; most local and state governments have racked up huge debts and are running big deficits too.  So, the overall problem is really very understated by the above simplified example.

The purpose of this exercise is just to show the dramatic actions needed to stave off fiscal disaster.  Even if one party got everything they wanted and more (historically high taxes and a 1/3 cut to the DoD) and the other party got much of what they wanted (elimination of one or more federal departments and solid restraint on entitlement growth) we're still screwed.

We.  Are.  Screwed.  Its basic arithmetic.