They Print Money Don’t They?


med_Pamelas_Mug_copy55The federal budget deficit, which has hit a record $13.5 trillion, increases on an average of $4.12 billion every day as congress continues to fund most anything that appeals to them. The estimated population of the United States is 309,077,801 so each citizen’s share of this debt is approximately $43,494.07.

Glenn Hubbard, Graduate School of Business, Columbia University, compares the deficit experience of the past 25 years and the next 25 years: First he reports, the good news for the deficit: Federal revenues will rise from 18 percent of GDP to 20 percent. Then the bad news, Federal spending will rise from just over 20 percent of GDP to more than 25 percent. And the problem gets worse the further out you go, doubling after 50 years as Social Security and Medicare deficits mount.

If Congress tries to close the budget gap over the next 25 years by raising taxes, it will need to propose tax hikes of 5 percent of GDP. That would equal a 25 percent increase in all taxes. In reality, the required tax increase will be much higher as higher tax rates hit investment, jobs and incomes.
Ideally, the best solution is to slim down government spending and government debt. Hubbard says a better tax system is in order that promotes growth and incomes. Both diet and exercise will improve our fiscal health. But any hope of either one of those things happening is remote given the current political state.

The government hasn’t been the best example of how to manage money as many in the private sector have adopted the same policy of spending more than they have. We’ve borrowed to pay for things we didn’t have cash for. We expected to have impressive incomes to pay that debt and the mounting interest.

Then we discover we don’t have enough money to cover our spending (another deficit), so we borrow some more and our debt keeps growing. Eventually, all you can do is pay the interest payment, and you don’t have any money left over for anything else.

Coincidently each year since 1969, Congress has spent more money than its income. The Treasury Department has to borrow money to meet Congress’s appropriations.

The administration’s current budget recommendation would permanently expand the federal government by nearly 3 percent of gross domestic product (GDP) over 2007 pre-recession levels; borrow 42 cents for each dollar spent in 2010 and leave permanent deficits that top $1 trillion in as late as 2020.

The looming question remains: shall the government stimulate economic growth via massive stimulus spending or the private sector take charge of economic growth through innovation and hard work?  
This publication receives numerous press releases on a daily basis. These are some of the releases we received in a just a two day period:

Congress Passes Legislation allocating $26 billion to save the jobs of thousands of teachers and other government workers. The legislation specifically provides $10 billion to school districts to rehire laid-off teachers or to ensure that more teachers won’t be let go before the new school year begins
Senate Unanimously Approves Child Nutrition Bill of $4.5 billion to increase child nutrition funding over the next 10 years under the Healthy, Hunger-Free Kids Act Congress Approves Wave Energy Funds.

Continuing efforts to accelerate development of wave energy technology in Oregon, U.S. Senators Ron Wyden (D-Ore.) and Jeff Merkley (D-Ore.) announced that Oregon will receive more than $4 million from the U.S. Department of Energy for wave energy technology. The funding will speed up projects to design and implement technologies that generate clean, renewable electricity from Oregon’s rivers and coast.

The vast amount of money being approved by Congress on a daily basis for a varied of projects is mind boggling. Meanwhile our state government continues to grapple with a $1.2 billion revenue shortfall.
Senator Chris Telfer (R-Bend) is proposing several ways that lawmakers can reduce state spending and balance the budget. The governor is ordering an 8 percent cut to every state program.  Telfer is asking lawmakers to meet in Salem to discuss a list of targeted budget reductions that she says will preserve the most vital state programs.

Senator Telfer (who is also running for state treasurer) suggests:
• Other state agencies should follow which the Department of Human Services leads the way in transforming the way services are delivered.  Of the more than 100 recommendations for improvement, 31 have been implemented, saving more than $80 million.  
• The state should review all federal funds to see if Oregon’s required match is worth spending.  The strings attached to federal funds may be greater than the benefit of spending Oregon tax dollars.
• Legislators should examine all new spending in the 2009-11 budget.  Any reductions should start there.  
• All General Fund money should be removed from the Department of Land Conservation and Development. Any functions the department can no longer afford can be handled at the local level by those with a vested interest in the economic health of the area.  This would save about $7 million for the remainder of the 2009-11 biennium.
• With three of four General Fund dollars going to employee salaries and benefits (according to the Governor’s Reset Report) we cannot balance the general fund budget without shared sacrifice.  Options for reductions in employee costs include:
• Approximately 3,000 new positions have been created in state government since 2007 (excludes higher education).  By eliminating those positions the state could save $160 million in the current biennium.  If public employee union leaders are not willing to open contracts to deal with health insurance and/or PERS the state will have no choice but to reduce the number of state employees.  
• Ask employees to pay for just half of the 6 percent of salary the state currently pays to their PERS accounts.  For the remainder of the current biennium this would save approximately $53 million.  
• Halt the practice of granting salary rate reclassifications to state employees which are really just a back door way to avoid the pay freeze.
• Ask state employees to pay for part of their health insurance.  If state employees paid what the average teacher does ($187 per month) the state could save over $71 million.
• Do not fill any positions currently vacant without the approval of
the Governor.
• Suspend any Business Energy Tax Credits tax credits not yet approved.  This could save approximately $80 million.

Families and businesses are working to dig out of debt, live within their means and become innovative and competive in surviving this recession. Is it too much to ask our state legislators and Congress to do the same?


About Author

Leave A Reply