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The family budget is NOT like the Federal budget

Anyone who compares the federal budget to a family budget simply doesn’t understand economics.

A family budget is ruled by how much revenue the family makes, and/or by credit worthiness of the wage earners. Families operate under a micro economic system that is finite. Still, if a family buys their house they may exceed their annual Gross Family Income (GFI) by over 500% when they sign for a loan that will eventually cost them $300,000 or more. 

The federal budget is a dynamic machine that powers not only federal spending, but it also impacts unemployment and the general health of America’s economy. The federal budget usually doesn’t exceed the Gross Domestic Product (GDP;) however, in times of economic crisis the Federal Debt has exceeded GDP (see chart) for short periods.

The US Federal Debt compared to US GDP

The Federal Debt is determined by revenue (federal taxes, fees, and repayments) and by expenses or spending. When more people are employed they pay more taxes on the earned income therefore the federal revenue increases and the Federal Debt falls. When the unemployment increases federal revenue decreases and Federal Debt increases because fewer people are paying taxes on earned income.

George W. Bush cut income taxes and drastically reduced federal revenue. He then increased federal spending and suddenly our Federal Debt began to balloon. In addition, federal entitlement programs like Medicare, Medicaid, and Social Security are approaching a point that we have more people receiving benefits than they are funded.

There are many ways to solve the Federal Debt over a period of time, but increased federal revenue (see: What America Must Do: Step 3) is necessary if we have any hope of maintaining the quality of life that we expect in the United States. Smaller government is not the answer, but will actually deepen our economic problems. A bigger government comes with its own problems.

Smaller government means smaller economy and higher unemployment in both the public and private sectors. Bigger government means a bigger economy and lower unemployment, but it also can drive up inflation. A balance between the two is needed, but for years we have downsized the government and that has killed America’s recovery from the 2007-09 Recession.

Since everyday increases the Federal Debt, conservatives and liberals must come to a solid compromise to balance the federal budget soon.  A target date for a balanced budget by 2015, should be possible through bipartisan cooperation; however, conservative extremists have no intention of bipartisanship, which is why they must be removed from the discussion (see: What America Must Do – Step 1.)

The other challenge is to bring the Federal Debt down under 50% of GDP. That can be accomplished by addressing some of the looming problems of the federal entitlement programs; however, a ‘dump and run’ strategy, where the federal government divides the current money up and dumps the programs on the individual states is a stupid solution. Federal government programs tend to be very efficiently administered. Dumping the federal administration of these programs in order to create 50 new State bureaucracies is a sure way to put most Americans in desperate poverty as State programs fail under the weight of the cost or States simply refuse to maintain the programs.

Erskine Bowles and Alan Simpson. Two of the smartest people in the room when it comes to solving the Federal Debt issue

With relative minor adjustments federally managed entitlement programs  can be maintained far into the future, and if conservatives and liberals build on work done by the Bowles-Simpson Commission the Federal Debt can be reduced  below 50% by 2020. 

If there is one issue that will safeguard the future of our children, it is the bipartisan work to resolve the Federal Debt.

Links to:

What America Must Do:  Step 1 – Silence the Wackos in Politics
What America Must Do:  Step 2 – An Extreme Makeover of Government at All Levels
What America Must Do:  Step 3 – Restore Government Revenue and Fair Taxation
What America Must Do:  Step 5 – Restart a Federally Run Space Program
What America Must Do:  Step 6 – Reinvent Higher Education