In my Introduction, I identified 3 expense types in the federal budget: appropriated, mandatory and interest. Then, in my review of Fred’s situation, I highlighted that in Obama’s 2017 Federal Budget plan, the federal government is planning to spend 20% to 25% more than it receives in tax receipts. This will increase the national debt from 19 Trillion in 2017 to 27 Trillion in 2025. Obama’s budget assumes that federal tax receipts, or income, will grow at a rate similar to the national debt, around 4 percent per year, so that the ratio of income to debt holds steady until 2025 near 18%. There is no plan in Obama’s budget to pay down the national debt. The Obama budget assumes that interest payments will grow around 14% per year from $223 B in 2015 to $838 B in 2025. Finally, by 2025, all entitlement payments will account for 80% of the federal budget.
Before I continue, let me repeat that I don’t care if you lean democrat, republican, independent, socialist or green. I hope that my audience includes members of all American political persuasions, as my commitment as the author is to present this critical discussion in an apolitical manner. Again, numbers are not political; how we behave and the decisions we make are political.
What can you expect as you continue to read this blog? I intend to present the current federal budget assumptions in a way that the average person can digest. Then, I intend to present four alternatives to Obama’s 2017 budget. The goal is two-fold. First, I want my readers to understand that they have the capacity to understand the federal budget. It is not so complicated, at least at a high-level, that it is beyond the comprehension of an average citizen.
Second, I want to facilitate a national discussion on the subject of how we as a nation can change the direction of the federal budget so that we stop the endless increase in the national debt.
Let’s start by focusing on “appropriated” expenses. These are expenses that Congress is supposed to approve year-after-year by voting on a budget. By contrast, “mandatory” expenses are the entitlements mandated by law, the largest of which are social security, Medicare and Medicaid, but also includes veterans’ benefits, etc.
Appropriated expenses are divided into two categories: defense and non-defense. Here is the picture of appropriated expenses in Obama’s 2017 budget through 2025. You can see that defense and non-defense expenses are approximately equal and grow at nearly the same rate.
In fact, this seems to be a very reasonable expectation for the federal budget. No drastic changes. Defense spending grows at an average rate of 2.6% per year, while non-defense spending grows at 2.2% per year.
I question whether or not this is a rational budget when we remember that the national debt is headed toward $27 Trillion by 2025. Is it possible to change the direction of appropriated expenses in order to reduce the accumulation of debt?
Allow me to simplify the discussion by making the following statement:
“We must maintain a strong national defense, and therefore, we will make no changes to the planned expenditures for defense as we explore strategies to reduce federal spending and the accumulation of debt.”
Ideologically you may disagree with this statement, but your ideology is worthless if our enemies attack and destroy our country. America is vulnerable and our best offense is a strong defense.
With defense spending off the table in this discussion, the question is should we cut non-defense spending and by how much?
On January 9, 2015, Philip Bump published an article in the Washington Post with the headline, “The percent of employed people working for the federal government is at the lowest level on record.” His article included these two graphs.
These data show that the percent of the workforce employed by government at all levels, local, state and federal, is at the same level last seen in the Eisenhower administration. Furthermore, if you look closely, the data suggest that government employment grew during the Reagan, Bush 41 and Bush 43 administrations, while it declined during Clinton and Obama administrations.
As you break out the employment numbers by local, state and federal government, the data clearly show that the number of federal employees has been steadily declining since World War II.
This point of view would justify the claim that the burden of government on American society is reasonable, and that any attempt to reduce the level of government employment to reduce taxes at the local or state level, or in the case of the federal government, reduce borrowing, is not warranted.
This is not the whole story, however. On September 8, 2015, Terrence P. Jeffrey published an article on CNSNews.com comparing the level of government employment to manufacturing employment in the United States from 1939 to 2015. According to data published by the Bureau of Labor Statistics, as of August, 2015, government employees outnumber manufacturing employees 22 million to 12.3 million, or 1.8 to 1. The crossover point occurred in August, 1989 at 17.9 million. Until 2010, manufacturing employment was in steady decline, but has recently started to grow, while government employment has risen and leveled off. This reflects the profound shift in our culture in the last century toward a service economy. Furthermore, it explains the reason behind the complaints of overburdensome regulation on business. What else would a government employee do except generate rules for non-government employees to follow.
Because this article includes government employees at all levels, it doesn’t help us answer the question of how much can and should we reduce non-defense spending at the federal level, especially since non-defense federal employment is already on a long-term downward trend. In this case, I would like to turn to the US Office of Personal Management, which published a report of total federal employment since 1962. This table illustrates their data.
From 1962 to 1970, non-military, federal employment averaged 90% of uniformed military employment. Since then the gap between non-military and uniformed military has widened to the point where the ratio in 2014 was 1.87 to 1.
What would it mean if non-military, federal employment returned to 90% of uniformed military employment? Imposing this 90% figure on federal employment practices would mean that 2014 non-military employment would drop 52% and total federal employment would drop 33.75%. If you cut the non-military employment by half, I assume that other non-defense expenses, such as rent, utilities, office supplies, and other federal expenditures would drop proportionately. This is how federal employment would have looked under this rule from 1962 to 2014.
Therefore, I propose that one of the steps to change the direction of the federal budget is to cut non-defense spending by 50% over 2016 levels. How could we do this between 2017 and 2025, and what would it mean? I’ll discuss this in my next post.