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By: Wayne Brown
The curtain should be rising on the final act of the Washington Little Theater very soon. The American public, through the antics of these elected actors and posers, has been led to believe that we are most certainly at the brink of financial disaster in this country and yet no one in the little village of Washington D.C. is to be held accountable for that destiny. They stand up on the stage posing and posturing in an attempt to distract us from the focus of the problem. The center piece of the play is “look how hard we are working for you and in the end, you get the status quo.”
That’s right, America. After it is all said and done, we likely will not get more than the status quo except we will have a new and higher debt ceiling which will allow the government to continue to think of new ways to spend money and continue to borrow 42 cents out of every dollar that we spend in the process. Which, by the way, simply leads us as a country back to this same process within a few months and likely to the same outcome once again…a continuous pattern which will not stop until there is no one to borrow from anymore.
The President has been busy standing in his bully-pulpit dispensing dis-information to some of the most venerable of our citizenry …our seniors. The message he is sending out says that if the conservatives force me to cut spending, I will have no other choice than to use your Social Security and Medicare money in order to pay our debt obligations. He poses that solution to say that there is no other way and those mean old Republicans are really the ones who want to take your entitlements away from you by demanding that we stop spending and put a budget in place. That is the essence of what he is attempting to sell.
The President believes that we do not have a spending problem. He believes that we have a tax problem in that the wealthy are not paying their share. Unfortunately the statistics do not support that fact and the President quickly loses that argument if the facts are spelled out. The question arises as to his sincerity on this issue considering the fact that he is counting on the “rich” of America to fill his campaign coffers with donations for his re-election. Ultimately, even if he were sincere, his effort at taxing the rich would be far more symbolic than anything else. Short of confiscating all the assets of the rich, the impact of increased taxation on that sector would not produce enough revenue to offer a viable solution. In the end, this is a President who is simply pushing class envy to gain a broader base.
Let’s get down to nuts n’ bolts and make the point. In 2010, our government spent 3.456 trillion dollars and it did so without a budget…nice work huh? Only 6% of that amount was paid out for interest on debt…in other words, we accounted for our debt service with 6% of the money spent by the government. Conversely, for every dollar which was spent on defense, there was almost one dollar of “discretionary spending” or spending which the government “elects” to do…not “is required to do” but “elects to do.” In effect you could say that for every dollar we spend on national defense we spend another dollar for pork barreling.
Social Security and Medicare are both in trouble on the long term and for good reason when we look at what went on in 2010. The combined efforts of both of these revenue streams brought in 70+ billion dollars more than it paid out…well in the black. That money was spent on discretionary things. That has been the case for a long, long time now. It’s no wonder that both programs will soon be insolvent given the fact that their assets have not been invested to insure some growth of the financial side for those times when there are less wage earners…any fool could see that train coming.
In the final analysis, our elected officials are arguing today over whether or not we can hold the current debt ceiling and still pay the bills…especially the interest due on debt. They are shoving 94% of the spending under the rug and using the 6% of debt liability as the basis of reason in this argument. Of that 94% under the rug, 20% is defense and 19% is discretionary spending based on 2010 figures. The remainder is entitlement spending (Social Security, Medicare) and mandatory government expenses. Discretionary spending in 2010 ran over 600 billion dollars in that single silo of elective spending. Interest payment on debt was approximately 195 billion dollars or roughly one-third the value of discretionary spending.
Here is the point. The President and his factions claim that spending cannot be cut. In essence they are saying that there is nothing in the “discretionary spending silo” which can be cut out…it is all essential spending. They argue that taxes need to be increased in order to increase the revenue stream and reduce the amount needed by the government which is borrowed each year. In other words, keep spending at the exact same rate or higher, tax more but borrow less. In order for that scenario to have any effectiveness, it will have to extend far beyond the sector of “riche folks” in this country.
In 2010, 42% of the incoming revenue stream for the federal government came from individual taxation or income tax. 51% of the American public paid that tax and the remaining 49% paid none for various and sundry reasons. The top 10% of the income earners in the country accounted for the majority share of the 42% revenue paid in 2010…the same group the President wants to tax even more. Much of that is true because the population that money came from is the small business sector of America…those earning $250,000 or more. This is also the sector of the market which creates the majority of jobs and currently the sector which is experiencing the roughest of economic times in this country, yet the President wants to tax them more so that we can continue to spend at the same rate.
Let’s be sensible here, surely there is some level of spending in that 19% of the outlay which can be stopped. Maybe it is 100 billion, maybe as much as one-third or 200 billion dollars which would totally pay the interest on our debt service for the year. This is where we should be hearing the discussion take place. This is where the rubber meets the road but neither side of the aisle really wants to speak of the particulars of that expense silo because it involves too much of the pork-barreling or earmark spending for which both are famous.
We can put our house in order to a greater degree simply by examining our discretionary spending as a government and making some hard choices or in some cases very easy ones. 200 billion dollars saved and applied to interest on debt is a very good first step in the right direction. If the Republicans understood that and could actually pull themselves together collectively, they just might be able to hold the President’s feet to the fire long enough to gain the cuts in spending. Instead, they waffle and speak in generalities not really giving the American public the necessary focus on this issue. The debt ceiling is not the focus…spending is.
The conservative side of the aisle has an opportunity to hold the line and put America on its first steps toward a more positive financial situation. As in any situation, the first steps are baby steps but they are at least in the right direction. Unfortunately, the truth of the matter is that the Republicans have not heeded the referendum which they won in the 2010 mid-term elections. Instead they seem to have taken a wait and see attitude and the hope that the 2012 elections will give them that easy majority. Those who voted in that direction in 2010 are not interested in waiting. The message was and is still clear and the assignment was given…get the reins on government spending and do it now!
In credit circles, there are two factors our country needs to consider. They are (1) Our ability to pay and (2) Our willingness to pay. While they sound alike, they are different in perspective. Currently, we have the ability to pay the interest on our debt with the revenue stream coming into the government unless you take the Obama position and assume that not paying our interest on debt will be the first action we take in lieu not cutting discretionary spending. That is where we tighten the belt. That is where we show our creditors that we are serious in our approach to managing debt and to being effective in the overall management of our money as a country. In doing so, we also demonstrate that we are “willing to pay”, that we take our obligations seriously and anyone who loans us money will get their payment and interest on time. Regardless of all the other discussion, when consideration is given to reducing credit standings, these factors come into play. The only real factor which plays negatively in this equation is when Obama publicly states that we will default on our debt service if we do not raise our debt ceiling. This plays to our “willingness” to pay our debts first in lieu of spending in other areas. In essence, it is Obama’s approach to the subject that puts the financial markets into the jitters.
Allowing all those who serve us in government to stand up and use their doublespeak and con game words in an attempt to mislead us into believing that doing just the opposite of what you and I consider common sense is the best approach for a solution to our financial woes is ludicrous. It reeks of the suggestion that our elected politicians consider the public to be a bunch of dimwits willing to buy off on any song and dance that has some level of technical attributes to it. Money management works the same way…if we are talking ten trillion dollars or just a lousy ten dollars. Choices have to be made and priorities have to be set. Spending twenty dollars when you only have ten never has been good financial advice and never will be.
© Copyright WBrown 2011. All Rights Reserved.