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  • Create Borrowing and Paid For Budgets

    Posted by TM Lutas on March 9th, 2011 (All posts by )

    In these times of fiscal insanity, the US desperately needs as many moments of clarity as it can get. One way to get an institutionalized moment of clarity on federal spending is to explicitly state which programs are paid for by our own tax monies and which programs we pay for by borrowing money. The most important programs go into the paid for budget and the stuff that’s nice to have goes into the borrowing budget.

    There is little cost associated with this process. All the same spending will happen except that instantly all the incentives change. Getting a spending item into the paid for budget makes it secure. It is a statement that we are willing to pay taxes to do this activity. Getting a spending item into the borrowing budget means that if there is a fiscal crisis (and at this point that’s more a when than an if) we would all have a first order screen that we could instantly use to focus our cuts on the stuff that Congress determined was not as important.

    Another very good effect on our politics is identifying where do interest payments go, in the paid for or borrowing budget. Every US consumer knows in their bones that if you’re paying off your debts with borrowed money, you’re in deep, deep trouble. So where would Congress put debt interest payments? By putting them into the paid for budget, they inspire confidence but at the same time this decision would push many more programs onto the borrowing budget.

    As a separate process, a bipartisan committee (similar to the successful BRAC committees that cut defense spending in the 1990s) could take the borrowing budget and provide a yearly fiscal sanity bill that took the borrowing budget and identified cuts to distribute fairly across the nation and across all the low priority programs in an intelligent way.

    But even without an institutionalized spending cut process, this change would improve things by setting priorities and getting the spending conversation where it should be, is program x, y, or z worth borrowing money to fund.

     

    4 Responses to “Create Borrowing and Paid For Budgets”

    1. Robert Schwartz Says:

      Money is fungible. You cannot differentiate between a borrowed dollar and a taxed receipt.

    2. TM Lutas Says:

      Robert Schwartz – The argument you’re making is that one cannot set priorities even in the most crude terms. Yes, borrowed and paid for dollars spend exactly equally which is what “money is fungible” means. But that’s not what I’m after here.

      You certainly can designate whether an expense fits into the top half of your priorities or the bottom half. You certainly can pre-select which of your expenditures you’re going to drop if the Congress does not raise the debt ceiling or the Treasury fails to sell bonds because we’ve lost investor confidence that our debts will ultimately be paid.

      Setting up “paid for” and “borrowed for” categories immediately provokes a mental process in all budget players where people no longer just ask whether an expense is worth spending money on, but also whether it’s worth borrowing money to pay for. Right now, people assume that we are borrowing money to pay for core government functions. But we borrow money for marginal expenditures, not core. The delusion that we’re borrowing money for important and not frivolous reasons is an important factor contributing to the size of our deficit. It’s a delusion that needs to be destroyed.

    3. VictorWhatsYourVector Says:

      I like it.

    4. Robert Schwartz Says:

      I am not arguing against priorities. Indeed the essence of budgeting is setting priorities. But, alas, priorities must be set with reference to things outside the budget. An understanding of the nature and role of the Federal Government should be the key reference point in setting the Federal Government’s budget. Unfortunately, the Democrat Party seems to have completely lost the thread, and the Nevada Cowboy Poetry festival is now just as important as the conduct of the war in Afghanistan.