$5 Trillion in Interest Payments

Interest rates on U.S. bonds may be ridiculously low, but that doesn't mean the country's future interest payments on the national debt will be.

Uncle Sam will shell out more than $5 trillion in interest payments over the next decade, according to the latest projections from the Congressional Budget Office.

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2011 Budget Deficit: $1.298 Trillion

The Congressional Budget Office recently finished tallying the revenue and spending figures for fiscal 2011, which ended September 30, and no wonder no one in Washington is crowing. The political class might have its political pretense blown. This is said to be a new age of fiscal austerity, yet the government had its best year ever, spending a cool $3.6 trillion. That beat the $3.52 trillion posted in 2009, when the feds famously began their attempt to spend America back to prosperity.

What happened to all of those horrifying spending cuts? Good question. CBO says that overall outlays rose 4.2% from 2010 (1.8% adjusted for timing shifts), when spending fell slightly from 2009. Defense spending rose only 1.2% on a calendar-adjusted basis, and Medicaid only 0.9%, but Medicare spending rose 3.9% and interest payments by 16.7%.

The bigger point: Government austerity is a myth.

read the WSJ article

Cartoon: The Budget

It is a Spending and Debt Problem

"Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that...an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits." John F. Kennedy

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Government Spending and Budget Cuts

There has been a lot of political effort and focus on the debt issue, and that is an improvement. So how big is the current change? Congress could only get a small down payment on cuts into legislation immediately. The Congressional Budget Office (CBO) scored the cuts as $917 billion over 10 years. To get more cuts, a Joint Select Committee is tasked with coming up with another $1200 billion more. If they fail, automatic cuts of $1500 billion are planned.

10 year cuts now: $917 B
Joint Committee: $1,200 B
Total: $2,117 B

So the total will be closer to $2.1 to 2.4 trillion, or 5% of expenditures. That is not enough with a current deficit at 40 % of expenditures. Compared to the projected expenditures of $45.8 trillion over this time frame, the effects will be small. A chart of the size of the initial cuts in blue compared to the projected expenditures in red puts the relative size in perspective:

The conclusion is that the best the government could do in making cuts is not enough to change the story that we will be spending more than we can afford, and that the scenario of dollar depreciation and gold rise will continue.

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Budget Deal

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Ron Paul on the Budget

Ron Paul writes:

In reality, bringing our fiscal house into order is not that complicated or excruciatingly painful at all. If we simply kept spending at current levels, by their definition of cuts that would save nearly $400 billion in the next few years, versus the $25 billion the Budget Control Act claims to cut. It would only take us five years to cut $1 trillion in Washington math just by holding the line on spending. That is hardly austere or catastrophic.

A balanced budget is similarly simple and within reach if Washington had just a tiny amount of fiscal common sense. Our revenues currently stand at approximately $2.2 trillion a year and are likely to remain stagnant as the recession continues. Our outlays are $3.7 trillion and projected to grow every year. Yet we only have to go back to 2004 for federal outlays of $2.2 trillion, and the government was far from small that year. If we simply referred to that year’s spending levels, which would hardly do us fear, we would have a balanced budget right now. If we held the line on spending and the economy actually did grow as estimated, the budget would balance on its own by 2015 with no cuts whatsoever...

In Washington terms a simple freeze in spending would be a much bigger cut than any plan being discussed. If politicians simply cannot bear to implement actual cuts to actual spending, just freezing the budget would give the economy the best chance to catch its breath, recover and grow.

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The Federal Budget

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Federal Revenues and Spending

The CBO report and many centrist budget wonks focus more on the problem of rising federal debt than on rising spending. As a result, many wonks clamor for a “balanced” package of spending cuts and tax increases to solve our fiscal problems. But CBO projections show that the long-term debt problem is not a balanced one—it is caused by historic increases in spending, not shortages of revenues.

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Fixing Fiscal Insanity: 6 Plans

from Solutions Initiative sponsored by the Peterson Foundation

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What Cuts?

Republican and Democrat leaders have agreed to cut federal funding by $38 billion this year (versus fiscal 2010). What does that mean for the overall spending picture? Based on estimates from the Congressional Budget Office, total federal outlays will still rise by approximately $177 billion.

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Budget Antics

It’s a cut of $38 billion in a budget of $3,819 billion. That’s 1 percent. That’s a rounding error in federal budgeting.

That same budget table shows that federal spending fell from $92.7 billion in 1945 to $55.2 billion in 1946, to $34.5 billion in 1947, and to $29.8 billion in 1948.

The fundamental point here is that federal spending rose by more than a trillion dollars during Bush’s first seven years, and then by almost another trillion in barely three fiscal years. And then we had a titanic battle over whether to trim $38 billion.

FY 2001 $1,863

FY 2008 $2,983

FY 2011 $3,819

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Two Budgets

Somehow, we could ratchet up spending by hundreds of billions at the drop of a hat. Reducing spending by less than $100 billion becomes Armageddon. Arnold Kling source

Analysis of Ryan's "The Path to Prosperity"

Here is his full plan. Path to Prosperity

Here are some critiques.

Robert Wensel writes:

Mainstream media will portray him as a big government slasher for this proposal. He is nothing close

Ryan's "radical" budget would only reduce government spending to 20% of GDP by 2015. Obama wants to cut it to 23%. It is currently at 25%. In other words, there's only a 3 percentage point difference between Ryan's proposal and that of wild spending Democrats. And, this of course is before all the Congressional horse trading that goes on that would surely boost spending levels...

Ryan's plan does not touch the Empire.

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Nick Gillespie and Veronique de Rugy write:

the GOP's plan written by Rep. Paul Ryan (R-Wis.) "is refreshingly engaged with reality. Unfortunately for taxpayers and citizens, Ryan's plan looks better when standing in the shadow of Obama's. Neither budget provides a good way forward for a country still battling the effects of recession and the non-stop, self-inflicted spending binge that began with George W. Bush and has proceeded unabated since then. Ryan's budget is indeed a positive break from past efforts by Republicans and Democrats alike, but it doesn't provide the solutions the American people deserve."

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Jacob Sullum writes:

Instead it lays out "a path to prosperity–by limiting government to its core constitutional roles, keeping America's promises to seniors, and unleashing the genius of America's workers, investors, and entrepreneurs." From this I gather that Ryan thinks sending retirees a check every month and paying for their health care are among the federal government's "core constitutional roles." Judging from the programs that Ryan wants to cut or consolidate rather than eliminate, so are a lot of other activities that one would be hard pressed to locate under any of Congress' enumerated powers, including medical coverage for poor people, agricultural subsidies, college scholarships, and job training.

Ryan is on firmer ground when he says "the first responsibility of the federal government is to provide for the defense of the nation." But that should not mean that anything labeled "defense" gets a free pass. One of the plan's notable weaknesses is its failure to question the premise that defending the nation requires the U.S. government to spend as much on military programs as the rest of the world combined—and more today in real terms than at the height of the Cold War.

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The 19 Percent Solution: How to Balance the Budget Without Raising Taxes

Ryan v. Obama

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Paul Ryan's Budget Proposals

Our budget, which we call The Path to Prosperity, is very different. For starters, it cuts $6.2 trillion in spending from the president's budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage's analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

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2011 Budget Battle

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Paul v Obama Budget Proposals

While Obama intends to continue spending at a historically high level, Paul would reduce spending as a share of the economy. Paul takes the scalpel to all areas of federal spending, including discretionary, defense, and mandatory. However, it is not a radical plan. In fact, it’s a practical, common sense budget that recognizes that the federal government’s growth has become unsustainable, and thus a threat to our economic well-being and future living standards.

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Paul's Budget Proposal

Greenspan: March 2001

Both the Bush Administration and the Congressional Budget Office project growing on-budget surpluses under current policy over the next decade. ...

The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion.

Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs.

These most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach and, indeed, would occur well before the end of the decade under baseline assumptions.

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$61 Billion Budget Cuts

Talk of a government shutdown is heating up. The current continuing resolution funding the government is set to expire on March 4th. Last week, House Republicans passed a bill that would fund the remainder of fiscal 2011 at $61 billion below fiscal 2010 levels. Senate Democrats are balking at the $61 billion in cuts and the president has issued a veto threat.

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