With the 2008 Presidential campaign racing at Formula 1 speed and the current financial crisis at space shuttle speed, I think it’s time to review a book that I read over the summer, titled Where Does the Money Go?

Where Does the Money Go? is a layman’s guide to the US Federal budget by the non-profit, non-partisan group Public Agenda.   Now, I am not ashamed to admit that I didn’t know much about the federal budget before I picked up this book.  This book, though, made me realize that not only did I know nothing at all, but I truly believe that most people who speak in words of “entitlements” and “appropriations” and “government waste, fraud, and abuse” don’t really know what they are talking about, either.

In plain language, the authors carefully step through the government spreadsheets, explaining what each type of expenditure means to the average American and raising the issues and controversies surrounding the financing or elimination of the major government programs.  Some things that I learned:

Social Security, Medicare, and the Gigantic Pickle We are In

Together, Social Security and Medicare are a big problem.  No, I don’t think I stated that accurately enough.

Social Security and Medicare are a BIG PROBLEM!!!

First, because, today, they combine to make up about 30% of the budget.  Second, because they are entitlement programs as opposed to needs-based programs – you reach a certain age, you automatically get the money.  No questions asked.  It doesn’t matter how much money you already have in your personal coffers or how long you have been paying into the system; you get a check from Uncle Sam anyway.  Third, because the Baby Boomers (the largest generational population) are coming of age, average life-expectancy has risen, more medical care is needed as people age, and medicine in general is getting more sophisticated and expensive. It doesn’t take a genius to see where this is going.

Currently, there is a collection surplus to pay for all those drawing Social Security (due in large part because the majority of Boomers are still in the workforce). The real problem is that the surplus is supposed to go into a separate account so that there is money for the rest of us when we need it. However, for the last 4 decades, the government has borrowed from this SS fund to pay for government overruns. “Borrow” typically implies that someone will end up paying this all back. Not so. The government has been using the SS surpluses as part of general operating funds for the better part of 40 years. The SS fund, in large part, has been paying for our excesses.

It occurred to me this way – Gens X and Y are screwed. I will likely pay increased taxes into a system that I will likely see little benefit from.  At the same time, I will be saving and investing money into retirement accounts that I have (cross my fingers) diversified enough so that the money will grow large enough to live on, but be protected enough in case the kinds of major investment emergencies we have seen lately come to pass again as I inch closer to retirement (home prices falling, my 401K losing 21% of its value, as of this writing).   I will likely delay my own retirement until well into my 70’s, perhaps my 80’s, to be able to support myself.

In a strange twist, immigration could help us with this Social Security crisis. New workers coming in and having their wages taxed would infuse a “false generation” into the mix.  But immigration is even more controversial than SS, and it won’t solve all of the problems. A solution must be found and soon!

The Appropriated War on Terror

The current War on Terror is not being funded by the federal budget, but by appropriations.  Therefore, it doesn’t even show up in the general budget as a line item or category.  Appropriations and spending are generally tracked by the Government Accountability Office, but even they have a hard time following the many breadcrumbs that can give them a clue into how much we have actually spent in Iraq and Afganistan.  If we are so committed to the Global War on Terror, we’d better be truthful with how we plan to allocate money for this — or stated more bluntly, what we have to cut in order to pay for this.

The Old Waste, Fraud, and Abuse Lie

And we can’t “eliminate government waste, fraud, and abuse” our way out of this, either.  Working at a government agency, I see some waste, no fraud, and very little abuse.  The waste and abuse that I have seen, and that has been widely reported in the news media, amounts to tens of thousands of dollars – bad yes, but a drop in our $2.2B annual bucket.  Most of the people I work with take their jobs seriously and care about taxpayers money.  They talk openly about it in meetings and such.  It is often the rally cry for some mucky-muck who is trying to kill another mucky-muck’s pet project, so we hear about “safeguarding the taxpayer’s money” a lot.

If my experience is true across most government agencies, then I feel secure in the authors’ assertion that there simply isn’t enough waste, fraud and abuse committed within government agencies to make up the annual deficit, much less the $9T-and-counting debt.  Counting money in the thousands at this level is like losing pennies in the washing machine.  Yeah, if you collected enough of those pennies, you could probably buy yourself a nice cup of coffee over time, but you’re not going to save enough spare change to buy yourself a house on the coast or a nice 30-year retirement.

This week’s news of a potential $1T bailout of the financial markets is a much more disturbing development in the waste-and-abuse argument, in my opinion.

No Free Lunch

As you hear things throughout this campaign about fiscal reform, about how the candidates are going to expand or start new programs to help people with their credit or mortgage problems, bail out corporate giants so that the entire global economy doesn’t collapse, take care of our seniors (and eventually ourselves) by securing Social Security and Medicare, protect pensions, stay in Iraq, consider military action on Country Di Jour, etc., while simultaneously cutting taxes, be very afraid.

Basic checkbook balancing principles are in play, here.  If you don’t have enough income and you have bills to pay, your choices are to:

1. cut back on spending
2. earn more income
3. borrow money from lenders at interest

That’s it.  Don’t be duped into thinking we can heal the federal budget by cutting, say, the National Endowment for the Arts ($300M) or NASA ($20B) or by cleaning up your favorite wasteful government agency.  With an income of $2.66T, expenditures of $3T, and a debt approaching $10T, we are up a creek if taxes (in one form or another) are not raised.

In a nutshell, buy this book and read it before election day.  It is an easy read, it brings up issues that you probably haven’t thought of, and will expand your knowledge of the most basic and most primal government power so that you can follow the discussion and know when a public official’s idea is full of crap.

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