Wednesday, October 09, 2013

A balanced federal budget this month?

Wow, the prospects are truly breathtaking! We may actually see the federal budget become balanced this month without anybody having to lift a finger. If Congress does not raise the federal debt limit, then by definition the the federal budget deficit will become zero, so that the "outlays" of the federal government cannot be greater than its revenues. Just like that, without even requiring the stroke of a pen or the click of a mouse.
 
Would there be some pain and a possible recession? Sure, the prospects are very real. But the gain from fiscal discipline would be truly awesome. No more deficit. A balanced budget. Just like that.
 
Would we risk a default on outstanding Treasury debt? Not at all. Not even close. It's really simple math. The president's proposed 2014 budget shows a deficit of $668 billion on expenditures ("outlays") of $3.883 trillion and revenues of $3.215 trillion. That's a deficit of about $55.7 billion a month. That is also the amount of "bills" due every month that Treasury would not be able to pay every month if the debt limit is not raised. That amounts to 17.2% of expenditures or outlays.
 
IOW, Treasury will be able to pay 82.8% of its bills if the debt limit is not raised. Yes, without Congress or the president doing anything, we can still pay 83% of our "bills".
 
That should be more  than enough to pay interest and maturing principle on Treasury debt, social security, Medicare, military pay and bullets and bombs (and drones), etc. In fact, a whopping 82.8% of the budgeted outlays. That actually sounds fairly decent to me, and hardly a "The Sky is Falling" scenario that the White House is fear-mongering about.
 
Still, my personal preference would be a less disruptive $50 billion to $100 billion budget cut in exchange for raising the debt limit. OTOH, the prospect of a balanced budget "in our times" is awfully tantalizing.
 
An across-the-board 1% spending cut would be a reasonable proposal for the president to make. That amounts to $38.8 billion. A counter proposal of 2%  ($77.6 billion) or 3% ($116.4 billion) would be reasonable proposals by the House.
 
What about a tax hike to balance the budget? Zero chance the House would go for it. As I said, the House doesn't need to do anything to get something it dearly wants, namely, a balanced budget.
 
The president is really playing with fire here. By refusing to accept a modest cut in spending he risks having a balanced budget as a fait accompli. OTOH, maybe that is what he secretly wants as well, despite his Progressive Liberal credentials.

-- Jack Krupansky

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