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Where Does the Money Go?
Your Guided Tour to the Federal Budget Crisis

Chapter One

The Six Points You Need to Know to Understand the Federal Budget Crisis

Finance Minister:
"Here is the Treasury Department's report, sir. I hope you'll find it clear."

Groucho Marx:
"Clear? Huh. Why, a four-year-old child could understand this report . . . Run out and find me a four-year-old child—I can't make head or tail of it."

—Duck Soup, 1933

Open any newspaper, tune in to any newscast, and someone will be tossing around billion- and trillion-dollar estimates about government spending and squabbling about the nation's finances. It certainly sounds important, but they don't make it easy for people who aren't policy wonks to understand. The numbers are mind-boggling, and the jargon is even worse. Unfunded liabilities, revenue neutral tax reform, entitlement spending, discretionary domestic programs, baseline assumptions, percentage of GDP. Faced with phrases like these, most of us reach for the remote to see what's going on in TVLand. But this debate is crucial to our future. Deep inside, you know it matters; otherwise, you wouldn't have opened this book.

Thebudget issue is a sneaky, slow-boil kind of a problem, one that's easy to avoid, and Americans have been doing just that for years. Politicians don't like to talk about cutting programs or raising taxes—which we'll no doubt need to do in some form or another in order to fix this budgetary mess. Journalists aren't making the country's budget problems the top news every night, either. After all, there are plenty of interesting scandals, crimes, and celebrity melodramas that make better headlines. And yes, fellow Americans, we've earned our share of the blame, too.

Let's be frank. When was the last time you cast your vote for a candidate who campaigned on getting the country's finances back on the right track? What about one who wants to cut government programs you like and raise taxes (which no one likes)? What do we talk about instead? Who had the most glittering celebrities at their fund-raiser. Who had the best zinger in the debate. Which candidate is making the cleverest use of YouTube. What a candidate did or did not do when he or she was twenty-something. No wonder so few people want to run for office these days—how would you like to have to defend everything you did and said in your twenties, or your thirties for that matter? And what about that pet question from the pre-pre-election polls: Which candidate would be more fun to have dinner with? How many Americans actually have dinner with presidential candidates, anyway? Go ahead, ask Mitt Romney or Barack Obama to meet you at Chili's sometime. See what happens. Is this what we really want from these people? Why are we spending time on this?

The truth is that those of us who aren't in government or politics—those of us who generally watch from the sidelines trying to make sense of it all—had better start paying attention to the debate about the federal budget and the huge expenses we face in the coming decades. What's decided (or not decided) over the next few years will spell big changes for the way we live our daily lives. How the country solves or doesn't solve this problem will affect our paychecks, our investments, our mortgages, our kids' prospects in life, what kind of health care we'll get, our chances of ever getting to retire—even whether we live in a country that's fair, stable, and prosperous. And let's not kid ourselves. Right now, the savvy and well connected are already strolling the halls of Congress pushing for solutions that benefit them. So ignoring this debate is really not a very good option.

Fortunately, once you strip away all the confusing terms and unnecessary shouting, the budget problem isn't as hard to understand as the people in charge would like you to think.

The budget debate, parking lot version

If you missed this on Entertainment Tonight or Entourage, a "parking lot version" is what Hollywood producer types call the shortest, simplest description of a movie or TV idea. Basically, it's what you can say to a studio exec if you're lucky enough to meet one in the parking lot, and you have to pitch your idea in the time it takes to walk to your cars. In Manhattan, which is short on parking lots, it's called the "elevator version."

We've reduced the budget issue to six essential points. Get these, and you're a long way to understanding what all the hoopla is about.

1. For thirty-one out of the last thirty-five years, the country has spent more on government programs and services than it has collected in taxes.

2. Every year the government comes up short, it borrows money to cover the difference. We've now built up a very big debt—roughly $9 trillion, and yes, that is trillion with a t.

3. The country will have humongous additional expenses over the next couple of decades as the baby boomers begin to retire and need more medical care.

4. There is no realistic way government can lower taxes (or even keep them at current levels), spend money on everything people want the government to do (at least according to the polls), and still end up with a balanced budget.

5. If we keep on going the way we're going, the debt will get bigger and begin to endanger the U.S. economy and our own personal finances and plans. And the government won't have enough money to pay for Social Security and Medicare for the boomers and still do what most of us expect government to do.

6. A substantial portion of the country's debt is held in foreign countries. Right now, these foreign investors consider U.S. government bonds one of the safest places in the world to put their money, but they could decide at some point that Europe or China or some other place is a better bet. This would be the global equivalent of a store clerk seizing your credit card and cutting it up.

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Excerpted from Where Does the Money Go? by Scott Bittle Copyright © 2008 by Scott Bittle. Excerpted by permission.
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