Managing the Budget – Deficit through a thousand leaks

Written on:November 9, 2013
 
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The federal budget is out of control and neither party seems willing or able to do something about it. Nevertheless something needs to be done before the current course – endless borrowing while the Federal Reserve prints money indefinitely – results in a dollar panic, runaway inflation and the collapse of U.S. credit.

There is a way out of the current predicament. The present situation has two main drivers.

Ideological partisanship

The established parties are driven by ideological “principles”, suitable for emotional manipulation of the electorate but devoid of clear, attainable goals. Since the “principles” of each party are incompatible with those of the other, and neither side willing to compromise, endless gridlock results.

Policy vacuum

Alternatives and goals are presented in general terms – “cutting spending” or “increasing revenue” – that do not address the inner workings of the budget process and are ineffective for controlling it.

A working alternative would proceed in steps, each with a concrete goal in mind:

First step: break the budget into more manageable parts

In the current system, all revenue goes into an enormous pot, the size of which – 3.5 trillion – is beyond anyone’s comprehension. The budget is so big that a diversion of funds to serve special interest appears negligible when compared to the whole – like taking a bucket of water out of the sea. This gives congressmen and lobbyists a free pass to divert funds to whatever goal serves their interests and those of their patrons. The result is “deficit through a thousand leaks”. No single one appears significant, but together they are a huge drain.

To remedy this situation, as much as possible of the budget must be put out of reach. Programs which have their own assigned tax base – Social Security and Medicare – must be returned to their original status as autonomous entities, responsible for their own revenues and the management of their funds. Their assigned taxes should no longer be paid into the general fund but retained and invested against future payments. This must be applied to all other programs of similar nature.

Second step: “You get what you paid for”

Currently dozens of different taxes pour money into the “General Fund” while hundreds of programs siphon it out. The result is unmanageable chaos. The solution is to assign revenues from specific taxes to designated ends. For example, the proceeds from a corporate income tax could be assigned to infrastructure investments and maintenance – on the grounds that such projects benefit primarily corporations. This would allow tracking of funds from collection to disbursement and make possible to measure the efficiency of the process.

The above is only an example. There are many ways to dedicate specific funds to a defined purpose. Doing so would remove another major portion of revenues from arbitrary use.

Third step: Consolidate

Merge all programs with the same or similar purpose within a single office or agency. This means that the costs associated with duplication will be eliminated. More importantly, the process will inevitably ask the question: “Is this program necessary?” At this point we have reached the fundamental issue: the purpose and justification of federal spending.

Here a question more fundamental than simple efficiency arises: Are these programs useful or necessary, and if so, do they belong in the federal budget or somewhere else?

In other words, it is not enough to make the budget more efficient as is. It is, at this point, necessary to ask what purposes this budget serves – and whether these goals are appropriate for now and for the future.

Our current social and political contract goes back to WW II. The war united and re-forged around a single purpose what was then a depressed and divided nation. The result was not only victory but extraordinary economic growth as well as global power.

We have operated on that basis ever since. Our global reach – which included the Cold War – demanded special emphasis on defense. Extraordinary prosperity led to sharing the wealth between all Americans, including the disadvantaged – the core idea of the “Great Society”.

It worked for fifty years, but now we are past that. Today the United States is neither an economic miracle nor the undisputed superpower.  For a number of reasons we are down from those pedestals.

This does not mean that the nation is finished. But our national purpose has become unclear. We are no longer the nation of Truman or Reagan. What do we want to be, and what ideals and goals do we want our children to have?

This is the fundamental question that underlies our budget deliberations and battles. Until we answer it our structural problems, such as budget management, will lack a solution. And we can only resolve that issue if the whole nation does it together.


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