Top
1.800.628.2783
1.800.628.2783
Spring 2013
Issue Map
The Public Manager

America's Storied History Is a Compelling Budget Story

America's story is a budget story, the ongoing struggle to allocate limited resources between worthy and competing demands, all balanced against the ability to generate and collect revenue.

Budgets
For public managers at all levels of government, a well-rounded grasp of the federal budget situation is a must. In one way or another, the federal budget affects most other governmental bodies and the pocketbook of every American. David Wessel's recent book, Red Ink: Inside the High-Stakes Politics of the Federal Budget (Crown Business, 2012), succinctly highlights a few points. While his material is very current, he effectively reaches back for context and provides a brief, engaging trip down America's memory lane by weaving the chronology of major events and trends with statistics and the associated price tags.

The author begins his civics lesson with the serious reminder that the federal government's power comes in three forms:

  1. its physical force, both foreign and domestic
  2. its ability to make and enforce rules that govern our lives
  3. its power to tax and spend.

In many respects, America's story is a budget story, the ongoing struggle to allocate limited resources between worthy and competing demands, all balanced against the ability to generate and collect revenue. George Washington understood this when he was trying to feed, clothe, and arm the Continental Army. Thomas Jefferson also understood this as he, a limited-government advocate, bargained for the Louisiana Purchase. On the revenue side, average Americans in that era had strong sentiments, too; reference the Boston Tea Party of 1773 and the Whiskey Rebellion in 1794.
Though the author is very much an "insider" (economics editor for the Wall Street Journal, contributor to the "Morning Edition" on National Public Radio, and winner of two Pulitzer Prizes), he makes these often-complex topics accessible to the average publicly aware American.

Spending $400 Million an Hour

In fiscal year 2011, the federal government spent $3.6 trillion, the equivalent of $400 million per each hour of the year. How can one comprehend the magnitude? The sheer scale of federal spending is often difficult to fully grasp: as the author notes, if millions, billions, and trillions are hard to grasp because they all sound alike, then use this illustration: golf balls to watermelons and watermelons to hot-air balloons. He sets the stage by offering a few observations:

  • Nearly two-thirds of annual federal spending is on autopilot and doesn't require an annual vote by Congress.
  • The U.S. defense budget is greater than the combined defense budgets of the next 17 largest spenders.
  • Firing every federal government employee wouldn't save enough to even cut the deficit in half.
  • About $1 of every $4 the federal government spends goes to healthcare today, and that share is rising inexorably.
  • The $700 billion bank bailout didn't cost taxpayers nearly as much as initially feared.
  • The share of income most American families pay in federal taxes has been falling for more than 30 years. Today, Americans pay less of their income in taxes than citizens of nearly every other developed country.
  • The federal government gives up almost as much money from tax loopholes, deductions, credits, and all other tax breaks as it collects in individual and corporate income tax.
  • For every dollar the U.S. government spent in 2011, it borrowed 36 cents, much of it from China, where the income per person is about one-sixth of that in the United States.
  • Today's budget deficit is not an economic problem—tomorrow's is.

How We Got Here

The current budget situation has been building for years, an amalgamation of economics, politics, insatiable appetites, and the reluctance of everyone (individually and collectively) to pay more taxes. The author briefly highlights a few significant events: the end of World War I, the Great Depression, World War II, The Great Society (guns, butter, plus Medicare), 9/11, the new Medicare prescription drug benefit, and the ongoing heated battles over tax cuts: all things that make America American.

Where the Money Goes

So where does the money go? Imagine a really big apple pie: in 2011, Social Security, Medicare, Medicaid, and other benefit programs received about 56 percent of the pie; defense received about 20 percent; interest on borrowing 6 percent; and the remaining 18 percent funded everything else. This is for federal spending only; state and local spending are an additional large pie.

Though this is a snapshot of one year, the percentages are fairly representative and indicative of where spending is headed. Entitlements, especially healthcare, are driving the train; most federal programs are funded by a relatively small portion of the budget (just 18 percent), and this is the only portion subject to the annual political review and decision-making process.

Even though federal spending is frequently in the news in communities across the country, many Americans are still misinformed about where the money goes. The author cites examples from polls, including the perception that food stamps account for about 10 percent of federal spending (rather than the actual of 2 percent; though in 2011, more than 46 million Americans were using food stamps, one in every seven people) and that the federal budget could be balanced if we eliminated waste, fraud, and abuse.

Advertisement

Another interesting poll: 44 percent of those who receive Social Security checks and 40 percent of those covered by Medicare say they "have not used a government social program."

Where the Money Comes From

Advertisement

According to Wessel, the other side of the federal budget equation is revenue, and the big questions include: Who pays? And how much do they pay? In the federal government's case, it also borrows significant amounts to cover annual expenses.

The largest tax shares come from individual income taxes (about 47 percent) and payroll taxes (that help fund such programs as Social Security and Medicare—36 percent); corporate income taxes are presently about 8 percent. In 2011, the top 1 percent of earners contributed about 25 percent of taxes collected, but 46 percent of households paid no federal tax.

As Wessel points out, a discussion of the revenue side also needs to mention revenues that are foregone because of a tax code provision: think tax break, loophole, deduction, credit, exclusion (many Americans benefit from the home mortgage interest deduction and the Earned Income Tax Credit, among others). Compared to the spending side of the budget equation, the legislation that governs the revenue side is even less subject to annual review.

This is also the side that many Americans profess expertise based on personal experience (each time a paycheck is received, minus a large chunk) and observation (a quick comparative analysis of the nice cars and houses we see in our daily commutes). Many experts agree that tax revenue increases must be part of the solution, but reaching agreement on who should pay how much more is the political sticking point.

Why This Spending Can't Go On Forever

Economists, policy wonks, and political officials have reached consensus on only one item: that we cannot continue on our "red ink" path. While they do not agree on a path forward or the timing, they do share concerns about who holds our debt (American citizens and American businesses versus foreign governments and foreign businesses), the growing cost of borrowing when interest rates eventually rise, the appetite of investors (foreign or domestic) to buy more debt, rising healthcare costs, and that even fewer dollars will be available for the day in-day out activities we all expect of government.

Becoming Part of the Solution

This book will not leave readers feeling better about the budget situation, but it will raise the general level of "budget literacy" and perhaps even spur more citizens to increased engagement and civic discussion. The budget situation has been building for years and reflects the cumulative policy decisions of our country—it is both our shared past and our shared future.

The humble public manager, both in our civil service roles and our personal lives, can do little individually to influence the outcome, but there are things we can do to lessen the impact and stress. A first step is gaining knowledge: this book is an excellent starting point because the author is masterful at making the material engaging and accessible.

A second step could be increased situational awareness: How does federal funding affect your programs and constituents (such as grants, transfer payments, cost sharing, and others)? How do changes to the tax code affect your personal monthly balance sheet?

And a third step could be serious implementation of improved, basic management practices (many are applicable to both work and home), such as meaningful strategic planning, uncomfortable process reengineering, adoption of appropriate new technologies, and sticking with some really tough choices about priorities and trade-offs.

SM
About the Author

Shelly McAllister is an analyst at the U.S. Office of Management and Budget. Her work focuses on federal budget concepts and presentation. Facts and figures cited are from the book and not independently verified. Any views expressed here are her own and do not represent those of her employer.

Be the first to comment
Sign In to Post a Comment
Sorry! Something went wrong on our end. Please try again later.