Part III

How is that for suspense? Well, it really is not that exciting but it is a serious issue. A problem with having a large debt is that we have to keep up the interest payments so we remain a profitable investment and people will keep buying securities. It is like making the minimum payment on a credit card so they won't close the account. This is really expensive. Every dollar we spend on paying the interest on a matured security is a dollar that could have been spent on something we need. In 2010 the US government paid 413 billion dollars in interest. To put that in perspective that amount that is the same amount of money that it took to run The Department of Education, The Department of Energy, NASA, Homeland Security, The Department of Veterans Affairs, The Department of Transportation, The State Department, The Small Business Administration, and The National Science Foundation all combined. Another way of looking at it is that if we did not have to pay this interest every person who played income taxes in 2010 could have cut their tax bill by 45.9%.

So, as you can see it is both costly and dangerous for our nation to have a large and growing debt. But odds are you knew that before you started reading this blog. The bigger question is how do we fix this, how do we pay down the debt? Simply put it is the same way any of us pay down our own debts, the government simply needs to balance the budget, or in other words generate as much revenue as it spends each year. This is easier said than done and there are a lot of strong opinions about how it should be done and chances are you have your own thoughts on the topic. Well, this is the meat and potatoes of this blog. There are a lot of theories out there about how to balance the budget and what I want to do is look at some of these theories and run the numbers and see how they add up.

Here is a list of some popular ideas on how to balance the budget. I am going to examine each scenario to see how effective they are and to what extent they would need to be implemented to have any real impact. My goal here is to remain apolitical and stick to what I can back with numbers. Over the next several blog posts I will look at these scenarios and see what the numbers say.

Plans to balance the budget:

Tax corporations more

Reduce government waste

Raise taxes on the rich

Grow the economy

Cut government (non-military) spending

Cut the military’s budget

Introduce a “flat tax”

Reform Social Security

Reform Health Care

These are the theories I am going to deconstruct. If there are any you would like me to add to the list feel free to leave a comment and I will do my best.