March 3, 2012
Can a Balanced Budget Be Achieved without a Plan?By Jim Yardley
In the past few weeks, the candidates for the Republican nomination have spoken of the need for a "balanced budget." Conservative media outlets have editorialized about the need for a balanced budget. Neighbors speak of the need for balanced budgets among themselves.
But, really, is a balanced budget necessary? The answer will largely depend on who is being asked the question. Ask Barack Obama, Nancy Pelosi, or Debbie Wasserman-Shultz, and all of them will, in an almost Pavlovian reflex, respond with "No! We need government spending to stimulate the economy!" If you asked Harry Reid, his response probably would be "Budget? What's a budget?"
On the other hand, if you ask the same question of any of the Republican candidates during this primary season, all will unanimously agree that of course the nation needs a balanced budget. If any of them has described just how he is going to achieve a balanced budget, it hasn't been trumpeted with any great fanfare.
As our friends in the media would phrase it, a follow-up question is needed to clarify exactly what actually is each candidate's concept of a balanced budget. The simplistic answer is that a budget is balanced when the revenues that are generated fund all the spending that is planned. We need to know how Romney, Santorum, Gingrich, and Paul (and even Obama) think they will get revenues and expenditures to match each other.
As a financial controller in a manufacturing environment for nearly 35 years, I've prepared a lot of budgets, so I feel that I have enough knowledge of the subject to be objective -- and very, very critical.
Any budget, whether balanced or not, is nothing more than a numerical description of a plan of action. Period. There is nothing magical about a budget. It just uses numbers to describe the outcome, expressed in dollars, that results from planning what the organization wants to accomplish, and then deciding how it will achieve those goals. Nothing more.
There is nothing in any budget that will automatically correct for bad decisions. There is nothing in any budget that prevents those in authority from spending far in excess of the amounts that they said that they were planning to spend. The smallest mom-and-pop business works to a budget, even when it's only scribbled out on the back of an envelope while both mom and pop were sitting at their kitchen table.
Even then, mom and pop develop a plan. Not one as elaborate as what General Motors might create, but a plan nonetheless. How much do they think they will sell to generate revenue? What will it cost to provide the product or service that they are selling? Will they need employees? How many? Doing what? At what wage?
Mom and pop also, on a subconscious level -- almost an instinctive level -- use zero-based budgeting. They don't assume that because last year or quarter or even month was pretty good, the future will simply repeat what happened in the past.
So now we need to ask these five supposedly serious men (Obama, Romney, Santorum, Gingrich, and Paul), who all claim to be fully qualified to run the largest and most complex organization on the planet, how they plan on answering those questions. What is their plan to balance the budget? How will they successfully implement that plan?
The root-cause of any question about balancing the budget is, naturally, the staggering national debt that is approaching $16 trillion. Our total national economy is something on the order of $14 trillion, and taxes on our economy currently generate approximately $2.2 trillion in revenue to the federal government, and about another $1.1 to 1.3 trillion to the states. In round numbers, that means that the total government "take" from our economy is about 25% of every dollar that the economy generates. And yet, the federal government alone spends almost as much as the federal and state governments collect in total!
And the question for all five men still remains: how are you going to get revenues and expenditures to come close to the same amount?
There is always talk of raising taxes, usually from Liberal-Progressive-Democrats. There is always talk of cutting spending, usually from conservatives and libertarians. RINOs try to avoid discussing spending cuts. For their part, they prefer to speak of "growing the economy" to generate more revenues without raising tax rates while holding spending steady.
For some reason, simple math seems to escape RINOs. To generate enough revenue to pay for our current levels of spending through economic growth, while holding tax rates stable, would require our economy to grow from about $14 trillion annually to about $20.3 trillion. That extra $6.3 trillion means we would need to grow the economy by 45%. That's nearly half again as large as it is now. Yet even optimistic growth estimates are in the 2.5% to 3.5% range. At 2.5%, a 45% total increase would take 15 years. At 3.5%, it would take only 11 years. In either event, the total national debt would continue to grow inexorably to nearly double the current level before we achieved a balance between revenue and spending (or as Obama prefers to call it, investment).
If there are to be no cuts in spending, and we plan to "grow" our way out to solvency, then the planning process, upon which the budget is based, leads to more and more questions, such as:
Has anyone thought about just how much money would need to be invested in new plant and equipment to grow the economy by 45%?
Has anyone thought about how many new jobs would have to be created in order to reach that 45% growth number?
Regardless of the exact number of how many millions of new jobs might be created, where are those people who would fill those jobs going to be coming from?
Is everyone in America going to have to work 60 or 70 or even 80 hours a week, or will we open the immigration floodgates and have to deal with the social problems, the housing problems, the assimilation problems, the lack of schools, the lack of health care facilities that would result from a massive influx of foreign nationals?
How will we hold spending steady in the face of these new demands on social programs?
The Fearsome Five who are running for president will have to convince me that they actually have thought of all these questions. They will also have to absolutely convince me that they have some answers. If their answers turn out to be wrong, I won't be surprised. But if they don't have any answers, they certainly won't get my vote.
And for those of you who feel uncomfortable asking difficult questions of the candidates, I refer you to an article I wrote two years ago, here at American Thinker. It's titled "Whom are We Hiring?" I hope you read it, since it might change your attitude about asking questions that make the candidates uncomfortable.
Jim Yardley is a retired financial controller for manufacturing firms, a Vietnam veteran, and an independent voter. Jim blogs at http://jimyardley.wordpress.com/, or he can be contacted directly at email@example.com.
FOLLOW US ON