Federal Budget 2010

Pres­i­dent elect Barack Obama con­vened his eco­nomic advi­sors today and one of the chal­lenges he will prob­a­bly be faced with is how to enact pro­grams that require sub­stan­tial spend­ings while, at the same time, find a way to reverse some of the dan­ger­ous course the fed­eral deficit appears to be on. On a new site designed as part of the tran­si­tion into office, the can­di­date asks for some ideas, effec­tively try­ing to use the inter­net cre­ated a gov­ern­ment run “for the peo­ple, by the peo­ple, and of the peo­ple.” Here are some ideas I had around the budget…

Bal­anc­ing the budget

Bal­anc­ing the bud­get, or at least low­er­ing the growth of the cur­rent deficit, may be a way to sig­nal a change in our national pri­or­i­ties. Doing so would not only appeal to fis­cal con­ser­v­a­tives but also work as an exam­ple to every­one in the coun­try that the days of financ­ing through debt are over. Send­ing such a strong sig­nal would ensure larger sup­port for some of the pro­grams that are truly needed in terms of restor­ing the country’s infra­struc­ture and ensur­ing that every Amer­i­can has access to edu­ca­tion and health­care resources.

The first item would prob­a­bly be a repeal of the tax cuts enacted in 2001 and 2003. Such finan­cial leger de main didn’t make sense then and it still doesn’t. Repeal­ing those cuts would put any­where from US$200 to US$300 bil­lions back into the gov­ern­ment cof­fers, which goes some way towards solv­ing the bud­get deficit gap.

An order ask­ing for a two per­cent across the board cut for all 2009 dis­cre­tionary spend­ings would add about $240 bil­lion in funds, help­ing han­dle the rest of the deficit (except for TARP)  and allow­ing the coun­try to get closer to a bal­anced bud­get. The total bud­get would still rep­re­sent an increase from the 2008 bud­get, just not as large a one. Mak­ing the cuts manda­tory across the board would ensure that the pain is evenly spread and not based on any ide­o­log­i­cal directives.

Retir­ing the debt?

Another big ques­tion that could be con­sid­ered would be around what to do with our national debt. Before TARP, inter­est on the national debt for 2009 were con­sid­ered to be around US$260 bil­lion. To put this in con­text, it’s more than what we spend on Med­ic­aid yearly (US$215 bil­lion); or 63 per­cent of what we spend on Medicare (US$409 bil­lion); or 40 per­cent of what we spend on social secu­rity (US$644 bil­lion); or a bit over 8 per­cent of the national bud­get… and that’s just the interest.

Not only that but today, for every US$100 the US gov­ern­ment cur­rently spends, it bor­rows US$14. That’s pretty scary because that money doesn’t come for free and that means that our inter­est pay­ments will con­tinue to increase over time.

So one could ask whether retir­ing some of that debt through accel­er­ated pay­ment might be a way to help cre­ate a sur­plus in the future. Since the debt will be crush­ing on future gen­er­a­tions, why not take the hit now and find ways to use some of today’s enti­tle­ments as ways to off­set those extra pay­ment. For exam­ple, if we were to pull out of Iraq, we prob­a­bly would end up with US$50 to US$100 bil­lion in spend­ings that are no longer nec­es­sary. Assum­ing we had bal­anced the bud­get by other means, could we look at invest­ing that money into retir­ing our national debt. The premise is the same as that of repay­ing a lit­tle more on your mort­gage every month: if you did that, you might shaves years of inter­est on the back end. In the case of the coun­try, that could means tril­lions of dol­lars that could be rein­vest­ing in the country.

Encour­ag­ing Investment

Our cur­rent infra­struc­ture is crum­bling. Whether it is roads, bridges, rail­roads, or the elec­tric grid, we are deal­ing wht a 20th cen­tury archi­tec­ture that is not suited for our 21st cen­tury needs. For exam­ple, one of the biggest holdups in get­ting cleaner energy in the coun­try is that the elec­tric grid is not built in a fash­ion that would allow rout­ing energy from low pop­u­la­tion areas to heav­ily pop­u­lated one. Rebuild­ing the grid to solve that prob­lem would cost about US$60 bil­lion over sev­eral years. But here’s an inter­est­ing tid­bit: that rebuild­ing could be done by the pri­vate enter­prises that cur­rently run the grid. The chal­lenge would be in get­ting dif­fer­ent states to agree to play together on set­ting com­mon rules for build­ing it out, cou­pled with some pos­si­ble tax cuts to off­set the ini­tial invest­ment costs. Some­thing sim­i­lar to the tax abat­ment on inter­net retail could be put in place around energy to stim­u­late, for some­where around 4–5 years, the invest­ment into new infra­struc­tures through some form of private-public partnership.

Also in the pub­lic pri­vate part­ner­ship side would be the cre­ation of a national ser­vice pro­gram allow­ing stu­dents to go to col­lege for free in exchange for doing national ser­vice. The pro­gram would take the form of up to 4 years of col­lege tuition paid for in exchange for up to 6 years of work­ing for the coun­try (The pro­gram would be sliced in one year incre­ments, with tuition for one year being paid in exchange for 18 months of ser­vice). That ser­vice could take the shape of work as a gov­ern­ment employee either at the state or fed­eral level. Ini­tially, the pro­gram would only be avail­able for edu­ca­tion through pub­lic uni­ver­si­ties. Pri­vate uni­ver­si­ties who are match the dif­fer­ence between the cost of a pub­lic offer­ing and their own cost would later be added to the pro­gram, which might help cur­tail the rise in the cost of edu­ca­tion. Ser­vice would be com­pul­sory for any­one who has taken a gov­ern­ment grant but there would be an opt-out clause that would allow some­one to repay the loan in full, with inter­est, in their first year out of col­lege, allow­ing them to join the pri­vate sec­tor after that.