National Debt and Katrina

Today, a group of House Republicans put forth a noble plan to cut "wasteful" government spending to blunt the effect of Katrina (and possibly Rita) of the budget. These noble men (and women?) immediately offered to let the President's tax cuts expire, and to give back the money that had been allocated to their districts in the massive pork-laden highway bill . . .

I'm sorry, I can't do this with a straight face.

Of course they didn't offer to sacrifice anything that they support. They nobly offered to cut medicaid , the National Endowments for the arts and humanities, foriegn aid, and to delay the perscription drug benefit for seniors for a year. It's nice to know that in times of crisis, this country can run a costly war, give tax cuts to the rich, and spend $225 billion on largely unneccesary pork-barrel projects, while heroically offering to screw the poor out of health care, cut funding to arts organizations, keep seniors from affordable perscriptions, and piss off the rest of the world by cutting aid. Believe me, if this had been prompted by anything other than a natural disaster, FEMA would have gotten the axe too.

The truth is, these morons will introduce bills for all of these cuts, and precious few will be enacted, even though they'll lick their chops at the chance to eliminate all these social programs. Everyone knows that we'll just end up borrowing the money.

I think it's time to put all of this in perspective. Let's think of the US government as if it were an average American--the Joe Smith of Middle America. Joe makes only $23,000.00/yr, but for the last few years, he has decided to give $2,000 of his salary out as gifts to his rich friends--you know, beacuse he likes them. This is ok, because he somehow managed to convince the bank to lend him $800,000.00 over the years, so he can afford to be generous. He's starting to run into problems, though. His interest payments for this year will be $3,300.00, leaving him with only $17,700 to spend on everything else, right? Not so. Joe decides that he must live in the lifestyle to which he has become accustomed, so he needs to go deeper in debt. He borrows an additional $3,400. Smart move for any American, right? He probably should invest the money, or spend it fixing up his home, but what fun would that be! He buys a flashy new car, expensive suits, and a brand new entertainment center. He gives more money to his rich friends--so that they can fix up other people's houses. Everything is just wonderful.

Oh, no. Joe's car is in an accident, and it will cost at least $2,000 to fix it. It's too bad that he didn't spend $32 a few years ago to replace the part that eventually broke, but didn't think it was worth it. Now he needs a whole new engine, and he's already spent all the money. Does he ask his rich friends for the gifts back? Does he consider not giving them gifts next year? Does he sell his new purchases to get the money?

No, Joe promises to scrimp and save, mostly by refusing to pay bills. He then decides to borrow and additional $2,000 to fix the car, and doesn't get rid of anything. In the end, after threatening to not pay his bills, he pays them anyway. Next year, he plans to borrow an additional $4,000 on top of his salary, while giving even more to his rich friends. In ten years, he will owe $110,000.oo to the bank! He'll just keep piling on the debt until the bank refuses to give him more. Good plan, Joe!

Multiply the numbers in the story above by a million, and replace "Joe" with "George W." and you have a pretty good idea of the fix we're in this year:

Revenues from taxes = $2.143 Trillion
Spending = $2.483 Trillion
Deficit = -$340 Billion
Interest due on debt= -$335 Billion

TOTAL NATIONAL DEBT -$7.9 Trillion

This year, before Katrina, we were planning to spend about $340 billion more than we take in in taxes, or about 16% of the total budget. This is the deficit. Where will we get this money? We will borrow it from foreign governments and other sources. We've already borrowed $7.9 trillion. Half of which, we borrowed since Bush has been in office.

That's great, isn't it, we can just keep borrowing the money right? It's good for the economy to have this extra money floating around, right? Well, the drawback for the country is the same as for you if you have a lot of credit card debt, the minimum payments keep going up. You eventually are spending so much on the interest, that it eliminates any advantage you gained by borrowing the money in the first place. We're actually paying interest this year that is roughly equilavent to the amount we're borrowing. Any loan shark would love that racket.

The obvious conclusion is that we're passing the point of diminshing returns on our borrowed money. If we didn't have such an enormous national debt, we could almost balance the budget and maintain current spending levels. But, alas, we have to spend 15% of our budget just on interest and we have to borrow that much each year to cover it--putting us deeper in debt and increasing our interest payments, which means we'll have to borrow more, which means that our interest payments go up . . . you get the idea. There's also the danger, that if we get too deep in debt, they won't lend to us any more if it looks like we won't be able to pay ever pay it back.

On top of that, we now have a $200 billion hurricane dropped in our laps.

Well, what can we do to fix the situation?

Well, we could raise taxes back to pre-Bush levels, but that really wouldn't help, right? Wrong. In fact, we could have paid for nearly the entire reconstruction of New Orleans with the revenue lost to Bush's tax cuts JUST THIS YEAR.

REVENUE LOST TO TAX CUTS (2005) = -$191 Billion

Still, we'd rather eliminate health care for the poor and funding for the arts, right?

I know what you're thinking. Tax cuts are Bush's baby. He can't cut those, besides, Bush didn't create this problem, did he? He inherited the debt from previous presidents, including Clinton, right? Yes, but the original deficit spender who got us into this mess was Reagan. Clinton inherited a huge and growing national debt, but by the end of his second term, he finally got the deficit eliminated, and stabilized the national debt. He even managed a $31 billion surplus.

NATIONAL DEBT on 1/1/2000 $4.5 Trillion.
DEFICIT on 1/1/2000 NONE! $31 Billion SURPLUS!

So what has Bush done in the last 5 years? Well, he's nearly doubled the national debt, by running deficits of between $100 billion and $300 billion every year. These deficits are created by a combination of increased spending and nearly a trillion dollars in tax cuts, of which, nearly half went to people who make more than $250,000/yr.

BUSH has borrowed, to date, $3.4 Trillion (for a total of $7.9 Trillion)
TAX CUTS SINCE 2001: $894 Billion
TAX CUTS FOR THE TOP 5% (over $250,000/yr income): $361.8 Billion

So, what can we do about Katrina? The tax cuts, which are actually set to expire, are the low-hanging fruit here. If Congress does nothing, and lets them expire, that'll save us $191 billion this year--Problem solved--and that leaves us in the fine position of overspending by the original, reasonable total of $340 billion. Phew. We're still headed for financial ruin, but at least we can pay for the hurricane.