Wednesday, February 24, 2010

Bank Slate Federal Budget Blueprint

One of the many reasons to condemn the Bush administration is its record of fiscal irresponsibility. In the final year of the Clinton presidency we had a 236 billion dollar budget surplus. At the end of the Bush administration, after a few unfunded entitlements, massive tax cuts and 7 years of warfare, the days of surplus were long gone. In 2008 the budget deficit was 454 billion dollars. The Bush record was one of constant tax cuts and spending increases. The result was predictable. He even oversaw the disintegration of our financial system left a pending depression as little parting gift.

Obama inherited a budget awash in red ink and an economy on the brink of collapse. He responded by cutting taxes and increasing spending. A lot. Well respected Keynesian-economic orthodoxy says this was the exactly right thing to do under the circumstances. Facing an economic crisis, the government should borrow a lot and spend a lot to get the economy moving again. The debt is worth incurring if it gets people working and prevents stagnation. And the theory worked. Sort of. The economy and unemployment stabilized. It's bad but it could have been worse. Much worse.

Stability came at a great cost. The 2009 budget deficit was a jaw-dropping 1.35 trillion dollars. In the first year of the Obama administration the government ran up 1 year deficit that was three-times that of the worst Bush budget. Still, it was a crisis. Now the worst has passed. Obama has been in office for a year. Earlier this month he unveiled his own budget plan. The Obama budget for 2010 projects....

... a 1.56 trillion dollar deficit.

In 2010 we'll see more tax cuts and more spending. Naturally, the Republican party finds these runaway deficits to be completely intolerable. If they were in charge they would... um... cut taxes even more!

We have a big problem.

With a total federal debt over $12 trillion it won't take many years of trillion plus deficits before this country is in big trouble. In the long term runaway spending will be ruinous. But in the short term cutting taxes and increasing spending is always popular. Cutting spending and raising taxes is political suicide. Especially with a battered economy and unemployment over 10% -- any party that calls for belt tightening will get run out of town.

What to do?

Here is my solution. There are some relatively simple measures we can take that should be politically palatable, would put us on a sustainable path to a balanced budget, and are vastly preferable to national bankruptcy.
I'll dive into some specifics in future posts. But the basics are pretty simple. Remember the year 2000 when we had a surplus of $236 billion? That wasn't so long ago. Were you crushed by the weight of over-taxation in 2000? Did you find the federal government of 2000 to be overly stingy with the public purse? 2000 was an Ok year, right?

The Bank Slate Federal Budget Blueprint:
  • The year 2000 should be used as a policy baseline. Tax and spending policies should be reset to the levels and rates they had in 2000.
  • Any policies enacted since 2000, that we wish to keep, need to be funded.

A lot has changed since 2000. Not enough had happened to justify perpetual trillion dollar deficits. But there have been changes. As the Bank Slate Federal Budget Blueprint series continues I'll dive into the big-ticket changes and how we can bring them back a sensible baseline. Specifically, I'll look at:
Stay tuned...


  1. I'm not sure that the year 2000 baseline will work well with the government's income reduced because of a poor economy (i.e., wasn't the econmony booming then, thus higher tax revenue to the fed and states?). In addition, uniformly reverting to 2000 levels without accounting for inflation sounds like a bad idea, effectively reducing services and putting more people out of work with a less robust safety net. I suppose it is better than nothing, though, especially if adjusted for inflation...

  2. The idea is more reverting to year 2000 policies rather than actual numbers. Over the years inflation will happen. Economic growth will happen. Some years you will have deficits. My goal is to advocate acceptable policies that align revenue and spending get us away from trillion $ deficits. I'm not really advocating we ignore inflation or imagine there was a spending freeze in 2000 and revert to that.