Thursday, February 16, 2012

2.2.22 Budget Plan

There is a lot of talk of deficits and debt with the recent release of President Obama's budget for 2012 thru 2022.  We consistently hear about the need for drastic spending cuts to remedy our fiscal woes.  However, how much do you think we would need to cut the federal budget from current levels to balance the budget if we set a goal to do so by 2022?  How much would we have to raise taxes?

The answer is that we do not have to cut anything.   We also do not have to raise taxes. We could balance the budget by 2022 if we just limited spending increases to 2.2% per year along with the current Internal Revenue Code.  When I tell people this simple solution they are almost always dumbfounded.  They hear about spending cuts but in the perverted world of government budgets a cut is not a reduction in spending from one year to the next.  It is merely a reduction in the level of spending increases.  There is no spending cut that you or I would recognize in our business or personal experience.

My plan is simply called the 2.2.22 Budget Plan based on the fact that limiting overall spending increases in the federal budget to 2.2% per year between now and 2022 will produce a balanced budget. It is also simple enough that even a politician with a 2.2 GPA should be able to grasp it.

The 2.2.22 Budget Plan assumes that federal revenues will increase by 6.0% per year.  This is right in line with the projected increase in revenues based on the most recent CBO report without taking account of any tax increases.  The revenue increases are projected to occur only through increased economic activity, inflation and other normal effects over the next ten years.

This graph shows how the deficit gap could be gradually reduced in a a reasonable manner following the 2.2.22 Plan.  Do you see any reduction in the red spending line below?

2.2-22 Budget Plan
Federal Revenues & Spending (2012-2022)

There are no drastic or draconian cuts despite what the demagogues would like you to believe.  Spending would  actually increase by almost $1 trillion over the next ten years under the plan.  Will the 2.2.22 Budget Plan require some tough decisions?   There is no disputing that.  We have put ourselves in a deep hole and it will require some real trade-offs and setting real priorities to fix it.  We are going to have to take a hard look at what is most important to us.  There will be some real pain.  However, any pain will be far less if we set reasonable targets now and commit to them than be forced into big cuts later when we might not be able to control the agenda as well.

Contrast the 2.2.22 Budget Plan with President Obama's Budget projections for the 2012-2022 period.

Obama Budget Plan
Federal Revenues & Spending (2012-2022)

This is just not a serious proposal.  The spending that is contemplated is simply not sustainable.   The Obama Plan also assumes $4.5 trillion in additional taxes over the ten year period but it still does not come close to balancing the budget.  Nothing could better demonstrate that we have first and foremost a spending problem that must be brought under control before we consider any further tax increases.

Keep these simple numbers and this simple phrase in mind.  Two. Two. Twenty Two.

Tell your friends.  Tell your neighbors. Tell your co-workers.  It is simple math.  2.2.22.

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