This week (November 17th), we are facing another potential shut down of the federal government, for lack of willingness in the House of Representatives to pass the necessary budget resolutions. There appears to be some last minute jockeying, but the underlying sticking point seems to be non-defense discretionary spending levels. Some Republican House members have been demanding a 30% cut in that spending category, ostensibly to eliminate waste and reduce the federal deficit.
A look at the 2022 Actual Federal Budget Results
Total 2022 Federal Revenues $4.9 Trillion
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Total Federal Expenditures $6.3 Trillion
Mandatory $4.1 Trillion
Discretionary $1.7 Trillion
Defense $.75 Trillion
Non-Defense $.91 Trillion
Interest on National Debt $.50 Trillion
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2022 Federal Budget Deficit $1.4 Trillion
Note: The final 2023 budget deficit has not yet been determined. The current official estimate is for a $1.5 trillion deficit. However, as of May when that estimate was made, spending was roughly the same this year as last. However, revenues were running well below forecast. If that trend continued through September, some say the 2023 deficit may be as large as $2 trillion.
What is Discretionary Spending, Anyway?
Republicans seem to be obsessed with massive waste in federal discretionary spending, but only in non-defense expenditures. Democrats on the other hand, push for cut backs in wasteful discretionary defense spending, but want more non-defense spending.
So what is discretionary spending? It includes all federal spending that must be authorized by Congress on an annual basis. That is as opposed to mandatory spending, which by law is funded for the indefinite future and available to anyone who qualifies in accordance with established program criteria – things like Social Security and Medicare fall into that category. Discretionary spending typically accounts for about 25% of the federal budget.
Most Americans probably have a general understanding of what defense spending buys. Likely few have a reasonably similar understanding of what is included in non-defense discretionary spending. So, a primer paragraph on that specific classification of spending seems in order:
There are eleven categories of funding called non-defense discretionary spending. They include Veterans benefits, Center for Disease Control (CDC) and National Institute of Health (NIH) operations, State Department operations, Justice Department operations, Federal Court System operations, and several other critical government functions. For a list, definition, and total expenditures in each of those eleven categories in 2022, review a companion post titled “ 2022 Non-Defense Discretionary Spending”.
Wasteful Federal Spending
So is there waste in federal non-defense discretionary spending programs? Absolutely, just as there is in every other federal spending program, whether discretionary or mandatory. Then is there reliable evidence that waste in non-defense discretionary spending is worse than discretionary defense spending, or any other federal spending program? NO; there is no such evidence.
The problem with non-defense discretionary spending and the reason it is such an easy target for reactionary politicians to claim vast waste seems to be that it buys “soft value” for American society – things like keeping democratic institutions functioning, supporting international relationships, maintaining domestic rule of law, and helping the more disadvantaged and economically or healthcare desperate members of our electorate. It’s hard to see, feel, or touch those programs the way one might a $90 million F-35 fighter plane.
Thruthfully, a reasonable case can be made that in discretionary spending, waste is substantially more prevalent in defense than in non-defense spending. In fact, the Defense Department seems to be the single biggest waster of funds in the entire federal government. It is the only federal agency that has never successfully passed a single annual financial audit in more than 30 years.
And it is not just sloppy accounting or potential mismanagement of funds that is questionable in the Defense establishment; it is also defense policy decisions themselves. The “defense/industrial complex” seems to be quite alive and well, and many argue that is the force promoting major wasteful programs. One example which is frequently cited: The Air Force is budgeting for deployment of a new fleet of manned heavy bombers. With US intercontinental ballistic missiles able to strike any specific target in the world precisely in about 30 minutes, who can imagine the need for a hundred new more advanced MANNED heavy bombers beyond what we already have, and at a cost of $700 million a copy? That demonstrates the political and financial influence of the US defense industry.
Regardless of all the above, arguing about cutting discretionary federal spending to reduce the deficit is for the most part a waste in itself. We have only to honestly ask ourselves whether we actually could substantially reduce the budget deficit by simply reducing wasteful discretionary spending, regardless of whether defense or non-defense. The answer to that question in easy. Given that discretionary spending is only about a quarter of the federal budget – There is not any chance!!
Focusing on that question a bit more though, think about this: Suppose we had just decided to cut the non-defense discretionary spending category by 30% in 2022, as Republicans are now pushing for in this year’s budget. In that scenario the deficit would still have been more than a trillion dollars without taking into account other economic stresses that move would have created.
The truth is that a 30% reduction in non-defense discretionary spending would probably not have produced any real savings at all. The funds that would have been withheld are exactly the ones that would have been immediately spent by the recipients, helping to drive further economic activity. Cutting them would have had a likely catastrophic negative impact on the broader US economy; federal revenues would have dropped significantly, maybe forced a recession, and civil impact/unrest would have been devastating in unpredictable ways.
Eliminating waste in federal spending and reducing the annual federal deficit are certainly worthy endeavors. Ultimately working toward a future balanced budget ought to be one of our key national financial goals. But a strategy focusing that effort only on reduced discretionary spending is a fantasy. It would require eliminating all non-defense spending as well as more than half of the defense budget. No honest politician would ever propose that kind of solution, and even those who have all know it’s not a legitimate objective.
It’s time to face the reality that there simply isn’t enough waste in discretionary spending to even make a serious dent in our current annual deficit. But we do need to take the annual federal deficit and the growing national debt seriously. I can easily make a strong case for why our current economic trajectory of deficit spending is unsustainable and, if not addressed, will ultimately lead to the loss of our democracy. Therefore the question is: what should we be doing?
It’s time for a bit of reality therapy!
Regardless of the current political chaos, if cooler more rational heads eventually do prevail, achieving a substantially reduced annual deficit and/or a balanced budget will require fundamental reform of the entire structure of how we raise federal revenue, what we spend it on, and what our national budget priorities are. That includes restructuring all spending and revenue programs, including so-called “third rail” political issues like Social Security and Medicare, as well as revenue increases through tax reform. Of course all discretionary and mandatory spending programs must be addressed as part of a holistic approach to budget management.
Because our federal revenue and spending needs are not static, let’s take a realistic look at future federal funding requirements and priorities. First, our population is aging, just as it is in every other developed country. That means that social spending needs (SS, Medicare/Medicaid, as well as discretionary social spending needs) will continue to grow year after year. Second, economic inequality is beginning to be a destabilizing influence in our democratic system of government; that also is growing at an alarming rate. And though unpopular among conservative politicians, we need to address that in the near term to protect our democratic political viability. Third, if we want to continue to compete and maintain some advantage in the global economy and leadership in global geopolitical affairs, the federal government must invest substantially more in fundamental research and development as well as domestic scientific, technical, and physical infrastructure than we do today. These all require a more robust federal revenue stream in addition to more efficient and responsible spending.
What To Do?
It is critical that the US both trim federal spending and at the same time raise revenues. The time to start is now. My goal here in this section is to identify potential opportunities to reduce spending as well as secure new revenue streams. Everything I list here is conceptual in nature, but is the kind of changes we must make if we want to move toward a balanced budget. At the same time few of these conceptual changes could occur immediately. A comprehensive revision of the federal budget would need to be designed and implemented gradually over a fairly long period of time, say 10 years, to allow the economy to adapt to a new paradigm and avoid economic catastrophe.
Some, most, or all the ideas I offer below may be required to reach a healthy sustainable national economic and geopolitical framework for the United States in the twenty-first century. I also recognize that often what appears to be spending cuts to some will look like tax increases to others. Following are possible changes to federal spending and tax policies that I propose must be explored for the long term health of our democracy:
- Completely rewrite the US tax code to be much simpler and to eliminate or dramatically reduce potential “loopholes” for imaginative tax avoidance squelch opportunities for evasion of tax liability.
- Develop and implement means testing for SS payments to retirees.
- Increase the age at which retirees can draw SS payments.
- Charge SS tax on all employee payroll earnings. Currently a SS tax of 6.2% is levied only on the first $160,200 of payroll earnings.
- Charge SS tax on all individual income regardless of its source.
- Return to a substantially more progressive income tax policy. Starting in the mid-30s and ending in 1981 federal tax policy was used to mitigate economic inequality as well as raise federal revenue. That worked well at the time; we could return to that strategy to increase federal revenue as well as collectively benefit the broader electorate.
- Tax all income at the same progressive rates regardless of its source.
- Tax the income of closely held corporations (those not publicly traded) as personal income to the individual stockholders.
Other Governance Challenges
This discussion has been limited to the annual federal deficit and exploding national debt crisis. Separately however, the US has other structural flaws to deal with at the same time if it hopes to remain a leader in the free world. And of course addressing them will also require federal funding.
Liberal democracy is a work in process in every country practicing or aspiring to such principles. As societies advance socially, what might have been considered too liberal a few decades ago are not even adequate standards for today’s national social character. That has never been clearer than it is today if one compares the US social systems with those in other developed countries.
Among those structural challenges the US national government faces are:
- How to implement an economical universal healthcare system that meets the needs of the entire electorate. The current free market system serves the wealthy element of our society very well; but it leaves most Americans inadequately covered, overpaying for the service, and unsatisfied with the results. On top of that US life expectancy remains below and infant mortality above the levels measured in other developed countries.
- How to provide and fund public tuition-free education/training beyond high school. This particular issue will become more critical as advancing technology requires a better trained and skilled work force. A high school education is no longer enough to meet the needs of business and industry in this century. The Nordic Countries have generally done a good job of meeting those needs. They could be good starting roll models for addressing this deficiency.
- How to develop and implement a rational immigration system. We need a system that attracts and makes it easy for the brightest and best educated to immigrate to and make the US their permanent home. We also need a workable program for temporary agriculture and other seasonal workers to be employed in the US. And finally we need a fair system for allocating a manageable annual number of immigrant visas from across the world.
- We must more forcefully address systemic racism and sexism in economic, social, educational, business, and industrial equality of opportunity.
These elements of liberal democracy are not getting enough serious attention from politicians today. Left inadequately addressed they will continue to drag down the American collective quality of life, economic competitiveness and growth in the global economy, and our geopolitical status in the world order. I may have more to say on some of these subjects later.