Wednesday, July 13, 2011

Get used to this new reality - no money for discretionary spending

When you run the numbers on the revenue coming in to the government in August, it's clear that the government could pay the bills for mandatory spending.
Here are the facts, as reported by MarketWatch and the Bipartisan Policy Center. You do the math:

* The federal government receives approximately $200 billion in revenues each month.

* Interest on the national debt in August will be approximately $29 billion.

* Social Security will cost about $49. 2 billion.

* Medicare and Medicaid will cost about $50 billion.

* Active duty military pay will cost about $2.9 billion.

* Veterans affairs programs will cost about $2.9 billion.
The problem is when we come to the discretionary spending. There would be only about $39 billion left. Mark Tapscott acknowledges what would have to happen there if the debt ceiling increase impasse is not resolved in August.
If you've been punching buttons on your calculator, you know that still leaves $39 billion each month. This is where Obama and the Democrats most fear to go. If Congress doesn't agree to raise taxes and the national debt limit, they will then have to make the tough choices about which of the remaining programs gets paid or cut and by how much:

* Defense vendors

* IRS refunds

* Food stamps and welfare

* Unemployment benefits

* Department of Education

* Department of Housing and Urban Development

* Department of Justice, etc. etc.

In sum, federal spending would have to be cut about 44 percent. For more on this, go here and here.
So there is no need to default on our debts or to starve granny. However, there would be difficult and tough choices that would need to be made on the rest of the spending. We'd see all those stories that we saw back when Gingrich and Clinton were facing off over the government shutdown of families who'd saved for their once-in-a-lifetime visit to Washington, D.C. only to find the Smithsonian closed. We'd hear about the employees in the federal bureaucracy who were facing unpaid days off just like much of the rest of the nation's employees have faced in the past few years. Of course, like last time, they'd get their money for those days paid retroactively.

Well, we better get used to it. Because this is where our budgets will be if we don't do something to trim mandatory spending. Just look at where we're headed if nothing is done.
It gets worse if you extend the prediction out further. And that is about what we have to contemplate in this little exercise about what to do with August's revenues.

Of course right now the executive branch has a lot of discretion on deciding what would get paid and not paid if the debt ceiling is not raised. But we can imagine a bill going through Congress to mandate that the President pay interest on the debt, Social Security, Medicare, and military pay plus veterans' benefits first. And zing! we'd then be facing in a few weeks the reality of what we'll be living with in twenty or thirty years. Here's another look at what our future will look like.
So if you don't like that picture and you don't like the thought of trying to fund all our discretionary spending out of about 20% of August's revenues, you should support reforms to change the trajectory that we're on. We can't afford the massive entitlement addition to mandatory spending that Obamacare represents. We need to enact true reforms to cut Medicare and Social Security spending. In short, we need to cut the size of the federal government. It is unsustainable for the future.

And the situation we're facing now, is the reality we'll be living with in a few decades. Get used to it.