Economic and Practical Consequences of Balanced Budgets Research Paper

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Balanced Federal Budgets

The federal government has a wide variety of responsibilities, most of which stem from programs that the government has created. Some of these outlays are discretionary, but many are not. The trade-offs for the federal government are usually not a question economics, but politics. The current federal budget for FY2016 shows a deficit of $474 billion. The largest outlays are for social security ($891 billion), other mandatory programs ($627), defense ($589), Medicare ($529) and non-defense discretionary, which covers a wide variety of different programs. Finding $474 billion to cut there -- or some of that money in conjunction with tax increases -- is inevitably going to be a challenge. Much of government spending in the budget is in the form of mandatory programs. Further, many of these are impossible, politically, to reduce. One does not simply cut Medicare payouts without losing a strong voting bloc, for example. The military is separated out from other discretionary items because it is only somewhat discretionary. The military is tied to the power and influence that the United States has in this world, and that power and influence is itself tied to economic opportunity, quality of life and other such issues. Thus, a reduction in military spending to some degree can be achieved, but there will come a point when the reduction reduces the effectiveness that the U.S. has in the world.

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This leaves non-defense discretionary spending at $563 billion for the 2016 fiscal year. To balance the budget would mean eliminating almost all this type of spending, so all agencies would be affected, and profoundly. The bare bones of federal government would be maintained only, with all other agencies -- be they the FDA, the Park Service, HHS or anything else -- would either cease to exist or would be gutted to the point of being non-functional in any way that we would recognize. The benefits of this are dubious at best - the pursuit of a balanced budget makes more sense by other means, like targeting major spending or revenue areas that have generally been spared.

The reality is that given the current state of the budget, it would be impossible to balance it. The idea sounds good to an opposition party that does not have to actually do it, because actually balancing the federal budget at this point would mean dramatic cuts to defense, to Medicare, to Medicaid and to Social Security. Senior citizens vote, the military budget can be reduced a little bit but there is a point where such reductions will do more harm to America than good, and ultimately there is no genuine appetite among voters….....

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