The Budget and Debt Ceiling - What's the real crisis?
The government has been in “shut-down” mode for over a week now. Amazingly, 85% of the government is still functioning (if you want to call it that), tax revenue still pours in, most bills still get paid, and the debt continues to climb at nearly a record pace; and all without a budget.
In my opinion, “the sky is falling”, debt ceiling debate is more rhetoric than anything. Since our actual debts will and should always be paid first, the real threat to our economy is the pace in which our debt continues to grow. Lately, you've probably been hearing President Obama talk about how he has shrunk the deficit, which is all fine and dandy, but you know what? What that means is tax dollars are still being spent faster than it can be brought in. It’s basically a budget shortfall. To put it into perspective, here’s a scenario:
You have a monthly income of say, $2500. That doesn't seem like enough to live comfortably, so you make a budget for $3600 a month instead. With the $1100 dollar budget shortfall (deficit), you decide to put on your high interest credit card to make up the difference. Each month, you pay your normal expenses, plus minimum payments with interest to the credit card company and add $1100 more to the remaining balance. Before long you hit your credit limit and have to ask for the limit to be raised.
This all seems pretty ludicrous, right? This is essentially how our government handles its finances. In 2012, the U.S. Government brought in roughly $2.5T in revenue, but spent an estimated $3.6T. That makes for a deficit, or budget shortfall of $1.1T. Do you see the parallel to my scenario? We have over 500 folks representing us in D.C. and no one seems to know how to balance a checkbook. This is not a sustainable practice for anyone or anything.
To fix this, hard choices will have to be made with serious cuts being made in spending; not to reduce the deficit, but to eliminate it and reduce our debt. To do this and get back on track, we need to make our expenses 90% of our income, with the remaining 10% paying down the more than $16 trillion debt. This would mean cutting $1.3T (37.5%) from the annual budget. This belt-tightening is doable, but again some hard choices will have to be made however painful, by eliminating or reducing programs that don’t sustain basic government. Then, once our budget is under control, I propose we make the budget fixed and have it self-adjusting with the rise and fall of the GDP. If debt must be accumulated, do so only in times of national emergency with a two-thirds majority approval in both the House and Senate, with a concrete plan to pay it down within 10 years.
The bottom line is, something MUST be done. We cannot continue as a nation to spend the way we do or there will be dire consequences.