Uncle Sam’s long overdue budget conversation
Bob and Janet Smith sat at the kitchen table.
They were working on their budget for the year ahead and thinking about any major expenses they could expect over the next three years.
Using the information they had gathered to do their taxes, they wrote down how much they each had made last year from their full-time jobs, their investment income and any interest on their various accounts. This gave them their income – or revenue.
They also had built a spreadsheet of their major monthly expenses, including their mortgage, utility bills, food and entertainment, car payments, insurance and the laundry list of other expenses.
They put this expense listing together with their income information, and were happy to find that when they subtracted their expenses from their revenues, a small surplus remained, which they planned to add to their emergency fund in the savings account.
Looking ahead, they anticipated their home would need a new roof soon, and one of their cars was approaching 10 years old, so a replacement would be on the horizon.
Their budget planning allowed them to look for where they might reduce a few discretionary expenses and save more, so, when the time came, they would be able to pay cash for the roof and have a larger down payment when they financed their replacement car.
Bob and Janet’s neighbors, John and Rachel Jones, had a somewhat different process in their home.
John Jones always had to have the newest and flashiest car. He financed each one, signing up for 60- or 72-month car loans, and then trading them in on the next one before they were paid off.
He also had a significant amount of student loan debt. They rented their five-bedroom home, and ate dinner out at a different restaurant every night.
The Jones family often discussed their finances, but instead of a cooperative budget discussion at the kitchen table, it was usually a shouting match about the other one’s rampant spending.
As they got closer and closer to bankruptcy, they would usually settle their arguments by each going out and buying something they wanted in order to make themselves feel better.
A year ago, they had taken out a consolidation loan and paid off their maxed-out credit cards, but since then they had opened three new credit cards which were now approaching their credit limit.
One day, John Jones lost his job, and since they had no emergency fund to tide them over, they missed two monthly rent payments.
Soon, they were evicted from their house.
If Uncle Sam were to sit down with his spouse at the kitchen table, would Mr. and Mrs. America’s finances have a closer resemblance to the Smiths, or the Joneses?
A family budget and a country’s spending have only a slight comparability, but the spending and saving habits are analogous.
Unlike a family, a country can run a modest deficit indefinitely, however, eventually the interest payments on the national debt begin to crowd out other spending.
Growth begins to lag, and flexibility in a crisis is reduced.
In December, Congress passed tax reform and this legislation may create a welcome stimulus for the economy. It may also add $1.5 trillion to a national debt that already exceeds $20.5 trillion.
Congress also has come to an agreement on funding for Fiscal Year 2018 (five months late), but in order to reach that agreement, they had to add $300 billion in additional spending over two years.
That is like the Joneses dashing out to the store and running up their credit cards so they could stop fighting over the budget that won’t balance.
By the way, Congress also suspended the debt limit, so there is no limit on America’s credit cards for an additional year.
This column supports funding for America’s critical needs, especially defense.
Nonetheless, something must change, and soon.
Perhaps we need to examine the mandatory spending that makes up over 70 percent of the national budget.
It is on autopilot, and it will keep growing if nothing is done.
We don’t want to wait for the unexpected event that stuns the economy, when we no longer have the financial flexibility to recover, and we are evicted from being the world’s largest economy.
See you on the high ground.