The U.S. Federal Budget and Civil Imbalances
What will be the central challenge facing the next U.S. president as the budget grows tight?
July 1, 2008
The confluence of economics and politics is government budgeting. It is in the budget process that elected officials attempt to meet the needs of voters and desires of important interest groups, achieve national interests and provide the conditions for economic growth and job creation.
Key elements of government budgeting are sustainability and equity. Foreseeable revenue and spending levels should be sustainable decades into the future.
This is a core element of the trust citizens place in their government. Spending commitments that exceed reasonable productivity and growth expectations will eventually mean painful tax increases and/or service reductions.
Unsustainable budgets mean eventually “lines will cross” and citizen expectations will be breached, long-standing relationships will be broken — and a civil transition to a new set of expectations and relations will begin. If the breach is severe enough, conflict of some kind may be inevitable.
Is the U.S. budget — and the citizen relationships it represents — so out of balance that we should worry about voter anger and political turmoil? The answer depends on whether, as the budget “lines cross” over the next 15 years, U.S. voters will remain comfortable with huge tax or deficit increases or spending cuts in every service the government provides.
When I refer to “lines crossing,” I mean federal resources for discretionary spending will be exhausted absent large tax or deficit increases or spending cuts. “Discretionary spending” includes everything the U.S. government does — except for interest payments on the national debt, benefit payments for Social Security and Medicare and other mandated entitlements, as well as federal tax expenditures.
As resources for discretionary spending diminish, there will be no money for national parks, for Head Start — or, for that matter, the Army or the Navy. No money for hundreds of government services and functions. No immigration control. No federal court system. No Homeland Security. No college scholarships.
Instead, all federal revenues will be absorbed by national debt interest payments, Social Security and Medicare and other entitlement payments and federal tax expenditures.
This last category includes subsidies and loopholes granted to politically powerful interest groups through the tax system — everything from the home mortgage interest deduction put in place to subsidizing housing, to private jet aircraft subsidies to support the U.S. aircraft industry.
Well before the lines cross, however, the United States will become a very different and very unpleasant place. In five years — just 60 months — there will be as much as 30% less money for much of what the government now does.
In ten years, the figure will be nearly 60% less. As the fiscal oxygen diminishes, people and businesses will likely fight for air. This fighting will be the answer to the question: Will Americans remain comfortable with their government’s failure to assure budget and relationship stability?
|Total Mandatory Spending Will Exhaust All Federal Revenue Resources by 2024|
||Data Source: Government Accountability Office. To view larger version, click here.|
The “lines crossing” — or “zeroing out” — of resources has been forecast for many years. In many ways, it is similar to the way U.S. businessmen, years in advance, saw the tax power of the British government — and the way the Southern states saw the westward expansion of the non-slave Northern states “zeroing out” their voting control of the House and Senate.
If Americans are sensing that the “lines” of their civil relationships are changing fundamentally, U.S. political conditions may be changing in historically important ways. These conditions may be aligning in ways that can only be resolved through conflict comparable to the turmoil that led to the last four major U.S. civil transitions — the American Revolution, the Civil War, women’s suffrage and the civil rights movement.
Are there signs that U.S. voters are anticipating problems? Is there evidence that voters are sensing that trust in government budgeting may not be well-founded — or that long-standing civil imbalances may become intolerable? Polling data suggests the answer is yes.
Voters are frightened by the weak condition of household finances and their rising vulnerability to sharp drops in income. In recent years, most U.S. families could not maintain their living standards without going deeper into debt.
Voters seem to sense that U.S. economic conditions are unsustainable. In poll after poll, they say the United States is on the “wrong track.” Similarly, they sense that for this to happen, the power of interest groups in Washington opposed to change will have to be overcome.
The two major-party presidential candidates — Senators Barack Obama and John McCain — are acutely aware of voter sentiments and are battling to be seen as anti-establishment in voters’ eyes. Obama does not accept campaign contributions from lobbyists — and McCain is firing major lobbyists on his staff.
Both have worked to enact Congressional ethics and campaign reforms. The efforts of Obama and McCain to be seen as independent of special interests are early evidence of the impending political struggle. In the upcoming presidential campaign, the early cannon fire of the fifth U.S. civil transition will be heard clearly.
Relationship imbalances within the federal budget take many different forms. Four are easy to identify: geography, lines-of-business, income and generation.
Some regions of the country get more per capita than other regions. Some kinds of businesses receive more subsidies than other businesses. Some income groups receive more benefits than other groups. In addition, older Americans get more than younger Americans.
As discretionary budget resources decline, these relationships will be shattered, and voters and businesses will be pitted against each other in fights over budget resources, over increases in taxes and deficits and cuts in entitlement and tax expenditure.
This coming budget struggle will mark an end to a phase of U.S. history and the transition into a new set of civil relationships among Americans. Getting the United States through this transition will be the central challenge of the next presidency. To get through it successfully, the United States will need — as it did in past transitions — a unifying central principle.
When Abraham Lincoln was running for president, he was often asked what the highest priority of his presidency would be. He said the principle that would guide his policy choices would be to preserve the Union.
He chose that principle because he knew that if he could preserve the Union, he would be able to preserve the Constitution and the ideal of the Declaration of Independence that we are all “created equal.” He believed that if he could preserve this ideal, the slave-free imbalance would be eliminated one way or another — quickly or slowly, through peace or war.
The United States now needs a principle that will guide its budget choices. The principle should be one that makes solid long-term economic sense and is consistent with the common history of Americans. Furthermore, it needs to make sense politically.
That is, it needs to be a principle voters understand and support at the most personal and fundamental levels. The principle that ultimately prevails will probably be one that speaks in terms of an American sense of equal opportunity and life success and calls for allocating resources on the basis of proven long-term economic returns.
So far, however, no candidate has, in a forceful or public way, articulated a Lincolnesque principle.
The coming budget struggle will mark an end to a phase of U.S. history and the transition into a new set of civil relationships among Americans.
Spending commitments that exceed reasonable growth expectations will eventually mean painful tax increases or service reductions — or both.
The United States will become a very different and very unpleasant place. As the fiscal oxygen diminishes, people and businesses will likely fight for air.
Is the U.S. budget — and the citizen relationships it represents — so out of balance that we should worry about voter anger and political turmoil?
Voters are frightened by the weak condition of household finances and their rising vulnerability to sharp drops in income.
Robert H. Dugger
Managing Director, Tudor Investment Corporation For the past 15 years, Rob Dugger has been a managing partner and director of the Washington office of Tudor Investment Corporation, a global asset management company responsible for approximately $18 billion of investor funds. Mr. Dugger is an expert on government policy assessment and the effects of policy on […]