Discretionary programs (includes defense spending) would be cut by $741 billion. The discretionary cuts for 2012 would decrease by $21 billion and $42 billion in 2013. Yes, these numbers do seem large however in the context of $14 trillion in debt they would be just chairs on the Titanic. In addition to this, $156 billion would be saved in interest because the United States would have a lower interest rate. This is where I am a little lost because unless the government can refinance its debt I don’t understand how they will save money. Standards & Poor’s and Moody’s I would imagine are on the verge of downgrading the United States credit rating to AA or possibly lower. If the credit rating of the United States were downgraded it would increase the cost of interest not save money. Another problem is how spending cuts are defined. An important question is what is the baseline for the cut? If politicians are saying we get cuts from things we were already were cutting to begin with or used overstated figures to begin with it could look like there is a cut when in reality nothing really happened.
One of the biggest problems we have is not discretionary spending but non discretionary spending. This includes programs like Medicare, Social Security, and Medicaid. In 2010 the United States government spent $3.45 trillion on payments to individuals. People can get paid through Social Security, Medicare, unemployment benefits, and federal assistance programs. The GDP for the United States was around $14 trillion in 2011. This would say that close to a quarter of all of GDP is just the government sending checks to individuals. In fact, payments to individuals were 2/3 of all spending for 2010. In 1952, payments to individuals were under 20% of all federal spending.
The government holds over $1 trillion assets in building and equipment. In addition to this there is around $919 billion of assets in land. Also the government owns $392 billion of mineral rights. These assets consume even more government resources since they have associated maintenance and replacement costs. The assets could be sold off to private investors who would pay taxes on them, create jobs, and increase productivity. One great idea is for the government to trade people government owned assets for Social Security benefits. The Social Security beneficiaries would have assets that they could use or sell if they wanted to and the government would be putting wasting assets to better use. Another idea for Social Security is to allow people to opt out of it. The idea would be to phase out Social Security over time since it takes money from the young to pay for the old. Privatizing or changing the age people can retire will prolong the solvency of Social Security a few years but the solution to solving Social Security is to phase it out.
Around 7.54 million people are on unemployment benefits. I would be interested to see what would happen if unemployment benefits were cut 10% or even 20% to see how people would respond. It would be wiser to set up the unemployment benefits would be to pay 100% of the benefits for a few months and then start lowering the percentage of benefits by 15% or so every month so people didn’t become dependent on it. I would much rather spend the unemployment benefit money on training out of work people than just paying people to do nothing.
I unfortunately I don’t see a brighter future on the horizon in the United States unless politicians take serious steps in order to get our fiscal house in order. I am really surprised neither party talked about this during the debt talks. Politicians talk about raising revenue. This could easily be accomplished by getting rid of the arcane and complex tax code we have and replacing it with a flat tax that would tax everyone at the same rate without deductions. Doing this would save everyone time and money and bring in more revenue since people wouldn’t be trying to shift income or assets to avoid paying taxes. Time will only tell our destiny though.
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