U.S. Budget Deficit: How to fix the problem in 5 steps

Beginning with President Woodrow Wilson in fiscal year 1917, the U.S. has run a cumulative budget deficit every year.  In 1916, President Wilson’s $63 million cumulative surplus switched to a $790 million cumulative deficit in 1917.  He managed this by being the first president in the 1900′s to ever spend nearly $1 billion over his revenues while also being the first president with a multi-billion dollar source of collected revenue.  That’s the financial cost of war–specifically, World War I.

Since World War I, from a cumulative deficit perspective, the U.S. has never recovered financially due to spending incurred by each subsequent major outlay of funds:  Wars, social engineering programs or depressions/major recessions.  During 2010, our total cumulative deficit is over $8 trillion dollars.  That means that each living person in the U.S. has an equivalent debt of nearly $27,000.

Where Does Our Money Go?

For fiscal year 2009 our president spent over $3.5 trillion.  The chart shows where our money went.

Solving the Budget Deficit

Step 1:  Where are we spending our money? As with anyone who has cut their own home budget, the first step is knowing where you’re spending your money and eliminating any category that even looks remotely like “miscellaneous.”  “Other Discretionary” is equivalent to “miscellaneous” and amounts to 12% of our government’s budget:  $437 billion.

Step 2: Base spending on revenue. We, as a country and government, need to live within our means.  Unless we’re at war or have to contend with a major natural disaster, we should never spend more than we make.  This is the same rule that households use to succeed.

In fiscal year 2009, our federal government had revenue of $2.1 trillion but spent $3.5 trillion.  Anyone with a credit card, car payment, or mortgage knows that this will not work.

Deleting TARP and Other Discretionary from the budget eliminates $588 billion.  We still need to find $825 billion in savings to balance our fiscal year 2009 budget.  To do this, items that our Congress and the Executive Branch label as “untouchable” need to be trimmed–significantly.  This includes Social Security and Medicare/Medicaid.  No wants to do this, but we have no choice at this juncture.

Projecting from data available from our federal government (source: U.S. Government Printing Office), the cumulative deficit is expected to grow to $9.6 trillion by fiscal year 2011 if we make no changes.  If we have the wherewithal to reduce our spending to 5% less than revenue and use the full 5% to pay off our cumulative federal debt, we’ll be debt free in fiscal year 2041–think of it as a 30 year mortgage beginning in fiscal year 2011.

Step 3: Reduce spending. We’re not done yet–the next step is to reduce spending below our revenue.  Our target should be 5% of our revenue each year.  That’s $105 billion of our fiscal year 2009 revenue.  That brings our new fiscal year 2009 budget to $2 trillion, as opposed to the $3.5 trillion that we spent.

Step 4:  Implement the plan and never stop. The key is to always run a surplus.  Once the deficit is paid off then refund some of the funds to the tax payers (it’s our money) and budget any remaining funds to critical infrastructure programs.

Step 5:  Write this into law today.

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