The federal budget is out of balance: for each dollar of revenues collected, $1.33 is spent . Congress and President Obama will soon meet to begin finalizing the approach to be taken in order to balance the budget over the long term.
A growing economy increases federal revenue; however, the current economy has not yet reached full employment status and, for the purpose of crafting a budget, future economic growth cannot be assumed, but can be considered. Spending formulas related to GDP increments are another possibility.
Various approaches have been suggested to correct this budget imbalance. One approach is to establish a flat tax to collect more revenue. Another approach is to adjust deductions such as those for charitable contributions, mortgage interest, medical expenses and a myriad of others. Another possibility is to allow deductions on Schedule A based upon an
income sliding scale. For example, taxpayers making $50,000 or below would get the full deduction, while those making $50,000 to $100,000 would receive a lower deductible, such as 75 percent, on up to a complete phasing out of deductions at the highest income levels.
The biggest drivers of the federal budget are defense spending and social
programs such as Medicaid. Defense spending increased dramatically due to
the Iraq and Afghanistan engagements, but these are now being phased out, which should result in significant reductions in the DoD budget over time.
In a peacetime economy under President Clinton, the budget was first balanced
and then came into a surplus over $230 billion. The surplus disappeared over the course of the Iraq and Afghan engagements. Prior to President Clinton,
President Nixon was the only other chief executive to balance the federal budget while still preserving some semblance of a social services infrastructure.
There has been some discussion of migrating responsibility for the Medicaid program and its funding back to the states. The thinking is that the states know how to spend the money more efficiently than the federal government. In addition, the states have the requisite databases necessary to reduce or eliminate data processing duplication and paperwork.
Another idea under consideration is federal taxation of junk food under the theory that it contributes to growing Medicaid deficits, as well as those of other programs. Taxing junk food such as sugary sodas and triple burgers would also generate more revenue for the government to deal with the shortfalls in Medicaid.
Sugary sodas elevate glucose and A1C blood levels, leading to juvenile and Type II diabetes. Triple burgers may increase cholesterol levels, as well as burden the body with processing too much protein in a short period of time. In any event, the junk food shows up eventually in patients’ blood and urine chemistry. Taxing junk food could lead to reducing the incidence of both adult onset and childhood diabetes, both of which drive up costs for government medical programs and private insurers. Junk food is also bad for the elderly and other at risk populations. Junk food aggravates the conditions of people with multiple morbidities associated with a multiplicity of diseases which are costly to diagnose, treat and manage.
Recently, the state of Washington legalized marijuana. Other states are considering its legalization, along with allowing the medical use of marijunana for patients with chronic unrelieved pain and those with terminal diseases. Federal legalization of marijuana could create a huge bonanza if the substance were subject to federal tax. This idea could be a significant revenue generator, and could be regulated in the same way alcohol is regulated. Decriminalization would also reduce court loads by eliminating minor drug offense arrests.
At some point, congress must agree upon a program to phase in both revenues and spending cuts and/or decreases in the growth of federal programs in keeping with GDP increments. The stakes are high, and the overall expectations of domestic and overseas investor depend on a continued economic recovery.
These are just a few of the many remedies available to bring the federal budget into balance, both in the short and long term.