Balancing the Federal Budget: Political and Economic Realities
This paper examines the challenges of balancing the U.S. federal budget, using the FY2016 deficit of $474 billion as its central case. The paper surveys the major spending categories — Social Security, Medicare, Medicaid, defense, and non-defense discretionary programs — and argues that eliminating the deficit through spending cuts alone would effectively dismantle functional government. It further considers the political constraints that make cuts to entitlement programs and military spending extremely difficult to enact. The paper then evaluates the role of Keynesian economic theory, arguing that permanent deficit spending misrepresents Keynes's intent, and concludes that the current structural deficit reflects a long-standing disregard for consistent budgetary principles across both economic booms and recessions.
- Overview of the Federal Budget Deficit: FY2016 deficit breakdown and spending categories
- The Political Barriers to Balancing the Budget: Why cutting entitlements and defense is politically impossible
- Keynesian Economics and Federal Spending: Keynes misapplied to justify permanent deficit spending
- The Structural Origins of the Deficit and the Path Forward: Long-term disregard for budgetary principles created today's deficit
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What makes this paper effective
- The paper grounds its argument in concrete FY2016 budget figures, giving the analysis a factual foundation that makes abstract fiscal concepts tangible for readers.
- It distinguishes clearly between economic constraints and political constraints, showing that the budget problem is not simply a matter of math but of voter behavior and political incentives.
- The critique of Keynesian theory is nuanced — the paper does not reject Keynes outright but correctly identifies permanent deficit spending as a misapplication of his theory.
Key academic technique demonstrated
The paper demonstrates the use of economic theory as an evaluative lens. Rather than simply describing the budget situation, it applies Keynesian ideology as a framework to judge current fiscal behavior, then turns that framework against both deficit advocates and their critics, showing that neither side has faithfully followed any coherent economic principle.
Structure breakdown
The paper opens with a data-driven overview of the deficit and its major spending components, then shifts to a political analysis of why cuts are unlikely. The third section introduces economic theory — specifically Keynesian economics — to contextualize borrowing behavior. The conclusion synthesizes both threads, arguing that structural disregard for budgetary discipline across political cycles is the root cause of the problem. Each section builds logically on the last, moving from description to analysis to historical judgment.
Overview of the Federal Budget Deficit
The federal government has a wide variety of responsibilities, most of which stem from programs that the government has created over time. Some of these outlays are discretionary, but many are not. The trade-offs involved in federal budgeting are usually not primarily a question of economics, but of politics. The federal budget for FY2016 showed a deficit of $474 billion. The largest outlays were for Social Security ($891 billion), other mandatory programs ($627 billion), defense ($589 billion), Medicare ($529 billion), and non-defense discretionary spending, which covers a wide variety of programs. Finding $474 billion to cut — or some of that amount in conjunction with tax increases — is inevitably a significant challenge.
Much of government spending in the budget takes the form of mandatory programs, and many of these are politically impossible to reduce. One cannot simply cut Medicare payouts without losing a strong voting bloc, for example. The military is separated from other discretionary items because it is only somewhat discretionary. Military spending is tied to the power and influence that the United States exercises in the world, and that power and influence is itself connected to economic opportunity, quality of life, and related concerns. A reduction in military spending can be achieved to some degree, but there is a point at which further reductions undermine U.S. effectiveness globally.
This leaves non-defense discretionary spending at $563 billion for fiscal year 2016. Balancing the budget would effectively mean eliminating almost all spending of this type, so all agencies would be profoundly affected. Only the bare bones of the federal government would be maintained; all other agencies — whether the FDA, the National Park Service, the Department of Health and Human Services, or any other — would either cease to exist or be gutted to the point of non-functionality. The benefits of this approach are dubious at best. The pursuit of a balanced budget makes more sense through other means, such as targeting major spending or revenue areas that have generally been spared from cuts.
The Political Barriers to Balancing the Budget
Given the current state of the budget, actually balancing it would be extremely difficult in practice. The idea may sound appealing to an opposition party that does not have to implement it, but doing so in reality would require dramatic cuts to defense, Medicare, Medicaid, and Social Security. Senior citizens vote in large numbers; the military budget can be reduced somewhat, but beyond a certain point such reductions do more harm than good; and there is no genuine appetite among voters for reductions in the core programs that make up the bulk of federal spending. A tax increase could be passed to help close the gap, but there are political limitations on how much taxes can be raised and how quickly. The politics of actually balancing the budget are attractive only to those who do not bear the political cost of doing it.
References
Government Finance Officers Association. (2014). Distinguished Budget Presentation Award Program (Budget Awards Program). Retrieved from
Mikesell, J. L. (2014). Fiscal administration: Analysis and applications for the public sector (9th ed.). Boston, MA: Wadsworth.
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