I've been on vacation, so I apologize if the fiscal cliff's been done to death.
I. The Numbers. [All data taken from the Wikipedia entry for "2012 United States Federal Budget"].
2012 Federal Govt Spending: $3.8 trillion.
2012 Federal Govt Revenues: $2.5 trillion.
Therefore, 2012 Federal Budget Deficit: $1.3 trillion.
The largest spending items are the following:
1. Social Security: $830 billion.
2. HHS (largely Medicare/Medicaid): $870 billion.
3. Defense Spending, including the wars: $690 billion.
So, those 3 budgets constitute about $2.4 trillion of the federal government's $3.8 trillion in spending.
By comparison, the other budgets are pretty small potatoes. The next largest are the Departments of Agriculture and Treasury at about $150 billion each. To see the entire list, go to the "Total Outlays by Agency" sub-section of the "2012 US Federal Budget" entry at Wikipedia.
II. The Problem.
The problem's easy to see, but hard to solve: how do we close the $1.3 trillion gap between our revenue and our spending? There's no doubt that some combination of revenue increases and spending cuts are required, but the devil's in the details: who pays (and gets cut), and how much?
I'm hoping there's some other folks out there as worried as I am about our $16 trillion national debt. We're stealing from our kids and that's not OK.
III. Random Questions.
1. Does anyone know how much government revenue would be generated by raising the top tax rate from 35% to 39.6%? I read somewhere it would be roughly $100 billion per year, but I've never been able to confirm that.
2. How much money could we save if we just put social security and medicare on a need basis, instead of giving it to everyone? Bill Gates doesn't need the social security checks he gets each month, so why shouldn't we save some money by not sending him any?
1. On CBS's $1.1 trillion number, I think they're citing the number that the President requested. By the time the budget was approved, it had reached $1.3 trillion. See the box on the right of the Wiki "2012 US federal budget" entry.
The Wiki footnote for the $1.3 trillion number looks correct: ^ a b c d "Fiscal Year 2013 Budget of the U.S. Government". United States Office of Management and Budget. Retrieved 13 February 2012.
2. I still don't quite understand what you mean by the government buying bonds to get free money. I think you mean selling bonds, since that's what the government does to finance the deficits: by selling bonds, the government receives cash from the buyers. But that cash isn't "free," since in exchange, the government gives its promise to pay that money back later (and to pay interest on those bonds starting immediately).
3. I completely share your frustration with economists. Those guys never seem able to agree on anything.
The problem in this case is that going back into a recession is such a nightmare scenario that even if there's only a 50% chance the economists are right about it, that's still seems to me like too large a risk to take.
If I could be sure there was only a 10% risk of backsliding into recession if the fiscal cliff hits, then I'd begin rooting completely for us to fall off it. Under the terms of fiscal cliff, NEXT YEAR'S deficit will be reduced by $600 billion, basically a 50% reduction. That's exactly the kind of progress I'd like to see.
4. We agree on this.
6. Yeah, that's a good point. It never made sense to me that the payroll tax has a maximum dollar value it's applied to. That makes it a regressive tax.
Any idea how much extra revenue removing that cap would generate? It seems like it would be a lot.
1.The CBS article was written Oct 12th. The deficit is 1.1 trillion and has fallen every year Obama has been president.
2. The Fed buys government debt. They recently announced they will BUY 45 billion a month. That means 540 billion dollars of debt a year taken out of circulation. I suggest purely as an acadademic excercise because it will never happen that the government spend this money next year to offset the fiscal cliff for one year.
3. There has NEVER been a recession when real money supply expands 4%.
You should also add interest. on the debt to your big four. That would take us to 2.9 trillion. Even if you shut down the rest of the government you don't balance the budget.
The deal set to go into effect is the best deal if you want to reduce the deficit The deficit is 1.1 trillion and this deal would cut it in half All the alternatives are worse than the deal we already have. If there is concern about too large a reduction then add a one year stimulus spending plan.
My concern's not that the deal will be too large a reduction, but that it'll be too small.
The most recent offers are talking about $1.2 trillion in tax hikes and $1.2 trillion in spending cuts.
Those numbers sound great until you realize they're projections over 10 years. Dividing those totals by 10 gets us an estimated per year revenue hike and spending cuts of $120 billion each, $240 billion total.
That would only reduce next year's deficit from $1.3 trillion to $1.1 trillion (ish). That's barely progress at all.