Bankruptcy, the American Way

It’s time for Americans to get serious and ask themselves why the United States government consistently spends far more than it makes. This fiscal policy has placed our country in terrible jeopardy. In 2010, for instance, the U.S. government spent $3.5 trillion yet only took in around $2.16 trillion in total revenue. This means a difference of $1.34 trillion was added to the deficit. A rational individual would not handle his bank account in this fashion. In order to weather this financial storm, the country must be willing to take a hard look at its financial practices.

First, the government must take responsibility for its indiscretions. Although Obama was president in 2010, he wasn’t the only president to contribute to the deficit. When the Bush administration was in office, the deficit nearly doubled from $5.7 to $10.7 trillion. Most of the money was spent on military expenses tied largely to the Iraq and Afghanistan conflicts, and a majority was lost on tax cuts, which have been extended annually and continue to increase the deficit. From 2009 to 2012, tax cuts caused the U.S. to lose more than $4.8 trillion in potential revenue. And let’s not forget the stimulus packages that will surely contribute to the impending inflation we’ll see over the next few years.

This issue is further complicated by our nation’s budgeting procedure. The U.S. bases its annual budget around the previous year’s tax revenue. This type of forecasting can be risky because the prior year’s income isn’t the actual income that will be earned. Ultimately, this is a gamble. For example, the stock market crash of 2008 negatively contributed to the deficit because the tax revenue projected for 2008 was significantly lower than projected.

In order to understand government spending, one must also understand how the government spends its money. There are two types of spending: mandatory and discretionary, each one controlled by its own regulations and procedures.  Mandatory spending is the amount the government has to spend by law, such as social security, Medicare and Medicaid. Discretionary funding is the amount the government is funding on an optional circumstantial basis. The U.S. budget for 2012 was set at a limit of last year’s earnings of  of $2.303 trillion. However, spending actually reached $3.8 trillion. Sixty percent of the budget went to social security, Medicare, Medicaid, and the department of defense. This includes the $2.3 trillion that was spent on mandatory funds. $1.5 trillion was spent on discretionary funds. The only optional program the government can cut is the department of defense, as this budget is funded primarily with discretionary money.  If the government had the option of cutting some of the mandatory spending, the discretionary spending would be more lucrative.

The graphs below offer a glimpse of the nation’s spending. The first graph offers a complete breakdown of America’s mandatory spending. The second one breaks down discretionary spending. Click to enlarge.

In 2010 , a committee was formed to examine discretionary spending. They found that over $22.3 billion more had been spent on the Department of Defense (D0D), in addition to last year’s spending.  Although, the U.S. made more than $100 billion more in tax revenue in 2011 than was generated in 2010,  the government is still spending more than it makes. How can informed, rational Americans who care about the country’s future continue to allow this to happen?

Solutions do exist and need to be vigorously proposed in a public forum until enough decision makers listen. Careful investigation and prudent spending policies are necessary to improve our financial situation. Case in point: President Obama gave Solyndra,  a solar energy company, $535 million and was prepared to give $500 million more after finding out the company was failing. Capitalism is a Darwinian process in which unsuccessful businesses cease to exist. This should have been allowed to happen rather than prevented at the cost of the American taxpayer. Speculation on tax revenue is also an issue. In 2009, the projected tax revenue was $2.8 trillion, and funds were allotted in accordance with this projection. Unfortunately, the actual revenue was $2.1 trillion, $7 trillion short of projections.

This kind of spending is disastrous for individuals and irresponsible of our government. Americans need to understand the dire condition of our nation’s finances and band together to change the way the government spends our money. The first three words of the Constitution are “We the people,” and as the people, we must take the helm and steer the nation out of the gale and into the light of prosperity.