As we face yet another threat of a government shutdown because the federal government cannot pass funding through legislature I want to share my thoughts on some inherent issues with government budgets. Lets face it, we have an enormous amount of national debt, and it’s way too late to play the blame game or point fingers, we have to do something about the deficits that we run every year. During the last years of the Obama administration people were applauding his reduction in deficit, which is a fantastic intentional misrepresentation. Credit is due that someone can reduce their spending deficit, but any deficit is still an addition to the total debt number, or in other terms, if you make $2000 a month and last month you spent $3000 on your credit card, your deficit was $1000. Saying you reduced your deficit just means that this month you made $2000 and only spent $2500, yeah you reduced the amount you contributed to your debt, but you still contributed to your debt. And to be completely fair the last president to operate a budget and end with a surplus was Bill Clinton.
We keep hearing about deficits, spending, revenue, and increasing or decreasing taxes in relationship to the current budget so what is the right answer. Unequivocally the answer is to control spending, indeed it is the only thing the government truly has control over. Tax revenues are variable, you can project and change the tax law to try and increase revenue (loosely associated term that I would refute theoretically), but taxation is always a best-case scenario. Large corporations can lose money, individuals will try to claim every exemption they can, and goods you’ve taxed at a higher rate will most likely move along the demand curve to an equilibrium that equals the same tax revenue as it did before.
Spending, though, is the white whale of conservatism, because they all talk about it but never seem to actually push it. And it is the true method by which the government can control the deficit. Back to the analogy of income compared to spending from earlier, if you know that your absolute lowest income level is, say, $1500, then you should control your spending so that it does not exceed $1500 no matter what. In the best case scenario you could potentially make more than you spend and save money. This is where the government fails, because in a governmental budget system not spending whats authorized means that you will not be able to spend as much in future periods. The problem is that no one in the government is rewarded for saving money, instead they are questioned as to why they didn’t spend every last dollar allocated, otherwise known as ‘use it or lose it’.
My mother always maintained that a slight deficit was better than a surplus because a surplus meant that the government did not live up to their promises some how. I’d disagree, in my mind budgeting is an estimate, and often you will find that you can do things more efficiently than initially expected, and this should be something we encourage when taking into consideration the fact that we are talking about our tax dollars. Politicians need to focus on ways to cut spending and not encourage a deficit at the expense of the tax payer just so they can maintain a relatively arbitrary expenditure projection.
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