Can you balance the federal budget?

[doubtingmerle]

In another thread I saw this post:

If we care about hunger, then we need to budget before the country goes broke, because when that happens, no one can be fed. Does it make sense to you to borrow money to pay for interest on the debt?

Ah, so you’re calling for a balanced budget—because if the country goes broke, no one can be fed. That may be a bit extreme, but let’s suppose we do need to balance the budget. What would you cut?

I pulled data from the federal budget here: The Budget and Economic Outlook: 2025 to 2035.

Next, I created the table below showing the current budget and several attempts to balance it.

Notice that the current deficit is 26.5% of total spending. That’s a serious issue.

Suppose we eliminated all non-defense discretionary spending (first option below). This would wipe out many needed programs—and still wouldn’t get us close to a balanced budget.

Let’s try a really severe round of cuts (second option). Still nowhere near.

Finally, I offer an off-the-cuff attempt at a “fair” balanced budget. It increases tax revenue by 25% and cuts some important programs. It’s just a first draft to visualize what a balanced budget might actually require.

Can you do better? Fill in the eight percentages you believe should go in the red-font column, and I’ll add your proposal to the spreadsheet so we can compare.

 

[Fantine]

Balancing the budget would be such a shock to the system we would go into a second great depression.

UK tried austerity and here's what happened. Layoffs, much lower economic activity lowered tax revenues. Because they didn't receive as much income, the deficit remained--along with misery, unemployment, etc.

I would cut the budget by eliminating the ridiculous military parade and Trump's lavish trips. The Secret Service is charged full freight at his overpriced resorts. Government shouldn't have to fill up his vacant Mar a Lago rooms for millions. They're there to protect him. He should provide their lodging for a reasonable per diem rate.

 

[doubtingmerle]

Balancing the budget would be such a shock to the system we would go into a second great depression.

UK tried austerity and here's what happened. Layoffs, much lower economic activity lowered tax revenues. Because they didn't receive as much income, the deficit remained--along with misery, unemployment, etc.

I would cut the budget by eliminating the ridiculous military parade and Trump's lavish trips. The Secret Service is charged full freight at his overpriced resorts. Government shouldn't have to fill up his vacant Mar a Lago rooms for millions. They're there to protect him. He should provide their lodging for a reasonable per diem rate.

Yes, I think a balanced budget is too severe.

Feel free to propose numbers that would not balance the budget but that are worth considering as a better option than the four listed above.

 

[Laodicean60]

Suppose we eliminated all non-defense discretionary spending (first option below). This would wipe out many needed programs—and still wouldn’t get us close to a balanced budget.

This is true, but Bessent also explains the reason for manufacturing jobs: when the country starts producing more goods and services, it offsets the debt-to-GDP ratio, which is now 120%, which is not good. I feel for any American losing their job, but the reason for the Federal job cuts is that those workers are nonproductive or do not contribute to producing goods and services. Most of the hiring over the last couple of years was for government jobs, which made unemployment numbers look good but didn't show the weakness in the private sector.

We are borrowing just to pay interest payments. It's like getting a credit card to pay the interest on the original credit card.

Finally, I offer an off-the-cuff attempt at a “fair” balanced budget. It increases tax revenue by 25% and cuts some important programs. It’s just a first draft to visualize what a balanced budget might actually require.

Can you do better? Fill in the eight percentages you believe should go in the red-font column, and I’ll add your proposal to the spreadsheet so we can compare.

Tax revenue will increase once more manufacturers build in the USA and start producing stuff, and those employees will use their income to spend in the service sector ie, Walmart. Plus, with an overabundance of jobs due to manufacturing will create wage competition, and some CEO's will have to give up their $1 million salaries and give it to the workers.

I'm all for the high-income individuals to pay more taxes, and the lower middle to the poor to pay none. I am willing to pay a little more in taxes because I have my kid and the rest of the millennials in mind, because purchasing power has been degraded because of the printing of money.

But with one caveat, I'm willing to pay taxes as long as my tax dollars are accounted for. I don't feel good giving my kids an inheritance away to a government that isn't fiscally responsible, because I've had to live fiscally responsible to be able to give them a dime or two.

 

[Laodicean60]

UK tried austerity and here's what happened.

The UK was the reserve currency in the early 20th century, and the reason it lost it was because of debt. I believe the French and Dutch were there before them and lost it for the same reason.

This shows how a reserve currency in the past has fallen, like the USA right now. By Ray Dalio

 

[doubtingmerle]

I feel for any American losing their job, but the reason for the federal job cuts is that those workers are nonproductive or do not contribute to producing goods and services.

I disagree. Government is good.

Sure, there’s waste in government—but there’s also enormous waste in private industry. Do you have any evidence that government waste is worse than what we see in the private sector?

Most of the hiring over the last couple of years was for government jobs, which made unemployment numbers look good but didn’t reflect weakness in the private sector.

We are borrowing just to pay interest payments. It’s like getting a credit card to pay the interest on the original credit card.

View attachment 364860View attachment 364862

Your charts compare apples and oranges. One shows the total number of federal employees, while the other shows the rate of hires in the private sector. A fair comparison would use the same type of data for both—such as total employment numbers in each category.

My preliminary research suggests that the percentage of federal employees relative to the total U.S. workforce has actually declined over the last four years.

Tax revenue will increase once more manufacturers build in the USA and start producing stuff, and those employees will use their income to spend in the service sector (i.e., Walmart). Plus, an overabundance of jobs in manufacturing will create wage competition, and some CEOs will have to give up their $1 million salaries and give it to the workers.

Now we’re getting to the heart of the thread. What you’re describing sounds pretty close to the doubtingmerle columns on my chart. Would you say you basically agree with those? (If so, it’s perfectly okay to say, “I agree.” )

It seems we both acknowledge that a substantial increase in income is needed to balance the budget. The key difference: I believe that requires a tax increase, while you’re hoping it comes from a boom in American manufacturing.

So—how do you plan to make that happen?

Consider this: the S&P 500 is down about 7% over the past 3 months. That suggests investors believe the value of these companies has dropped—not because their factories suddenly deteriorated, but because they expect lower sales and profits.

If sales and profits are falling, where exactly is the extra tax revenue going to come from?

 

[doubtingmerle]

Balancing the budget would be such a shock to the system we would go into a second Great Depression.

The UK tried austerity and here’s what happened: layoffs, much lower economic activity, and reduced tax revenues. Because they didn’t receive as much income, the deficit remained—along with misery, unemployment, etc.

I agree—going cold turkey on budget balancing would not end well. We’d need to phase into a balanced budget gradually. But ultimately, I think that’s the direction we need to go: slowly reducing the deficit over time until we reach a balance. That might look something like the final set of columns in my chart (adjusted for inflation, of course).

I would cut the budget by eliminating the ridiculous military parade and Trump’s lavish trips. The Secret Service is charged full freight at his overpriced resorts. Government shouldn’t have to fill up his vacant Mar-a-Lago rooms for millions. They’re there to protect him. He should provide their lodging at a reasonable per diem rate.

I agree—there’s no shortage of waste, especially when it comes to spending that serves private luxury rather than public good. But even so, if you add up the total billions wasted on things like that, it probably doesn't even register beyond a rounding error in the budget table I posted earlier. The real challenge lies in addressing the much larger structural costs.

 

[Richard T]

This is true, but Bessent also explains the reason for manufacturing jobs: when the country starts producing more goods and services, it offsets the debt-to-GDP ratio, which is now 120%, which is not good. I feel for any American losing their job, but the reason for the Federal job cuts is that those workers are nonproductive or do not contribute to producing goods and services. Most of the hiring over the last couple of years was for government jobs, which made unemployment numbers look good but didn't show the weakness in the private sector.

We are borrowing just to pay interest payments. It's like getting a credit card to pay the interest on the original credit card.

View attachment 364860View attachment 364862


Tax revenue will increase once more manufacturers build in the USA and start producing stuff, and those employees will use their income to spend in the service sector ie, Walmart. Plus, with an overabundance of jobs due to manufacturing will create wage competition, and some CEO's will have to give up their $1 million salaries and give it to the workers.

I'm all for the high-income individuals to pay more taxes, and the lower middle to the poor to pay none. I am willing to pay a little more in taxes because I have my kid and the rest of the millennials in mind, because purchasing power has been degraded because of the printing of money.

But with one caveat, I'm willing to pay taxes as long as my tax dollars are accounted for. I don't feel good giving my kids an inheritance away to a government that isn't fiscally responsible, because I've had to live fiscally responsible to be able to give them a dime or two.

Over the years I have seen studies about how much it costs to retain US jobs esepcially in the auto sector when the government gets involved. In most cases it costs around a million dollars per job. Here is an example of tire manufacturing jobs. "According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers." Source: https://www.piie.com/publications/policy-briefs/2016/us-tire-tariffs-saving-few-jobs-high-cost

Your other points are spot on.

 

[Laodicean60]

Do you have any evidence that government waste is worse than what we see in the private sector?

The waste in government affects everyone's tax dollars; the waste in the private sector affects their profit. This is why companies run more efficiently than the government.

Your charts compare apples and oranges. One shows the total number of federal employees, while the other shows the rate of hires in the private sector.

Come on, you are hell bent on arguing, and I'm not. When you see the government employees rising in that chart, how did they get there? THEY WERE HIRED!

What you’re describing sounds pretty close to the doubtingmerle columns on my chart. (If so, it’s perfectly okay to say, “I agree.” )

And did you think I was arguing AGAINST you? I was explaining my interpretation of what the admin is trying to do and what was needed to fill the gap. Sheesh

Consider this: the S&P 500 is down about 7% over the past 3 months. That suggests investors believe the value of these companies has dropped—not because their factories suddenly deteriorated, but because they expect lower sales and profits.

I think you need to learn about how the stock market works. The stock market is not the economy because out of 500 companies, only about 50 and their weighting within the index have caused the rise in that index, and also the sector (AI).

 

[Laodicean60]

Over the years I have seen studies about how much it costs to retain US jobs esepcially in the auto sector when the government gets involved. In most cases it costs around a million dollars per job.

With the auto industry, Trump has made concessions, but I don't think Trump wants ALL manufacturing back because you are correct that if we were to bring back textile toys and all that other irrelevant stuff, it would be expensive. Where the news is for National Security, like everything war machine, healthcare, energy, shipbuilding, and rare earths. All that irrelevant stuff can still be imported from South Asia and South America. South Asia is already trying to take market share from China, which will benefit their countries.

But how do you feel about all the countries that reap billions in trade surplus with the USA and still tariff our goods? I understand the tariff we allowed the countries to place on our goods after WW@ because many countries had to rebuild, but 80 years later, once they are developed and major industrial nations, they still tariff American goods. Canada has like 60 billion trade surplus and still makes 300 million in tariffs. Not to mention our adversary, China.

I've said before that both admins recognised the need for national security, and I believe in this policy.

 

[Richard T]

In another thread I saw this post:



Ah, so you’re calling for a balanced budget—because if the country goes broke, no one can be fed. That may be a bit extreme, but let’s suppose we do need to balance the budget. What would you cut?

I pulled data from the federal budget here: The Budget and Economic Outlook: 2025 to 2035.

Next, I created the table below showing the current budget and several attempts to balance it.

Notice that the current deficit is 26.5% of total spending. That’s a serious issue.

Suppose we eliminated all non-defense discretionary spending (first option below). This would wipe out many needed programs—and still wouldn’t get us close to a balanced budget.

Let’s try a really severe round of cuts (second option). Still nowhere near.

View attachment 364858

Finally, I offer an off-the-cuff attempt at a “fair” balanced budget. It increases tax revenue by 25% and cuts some important programs. It’s just a first draft to visualize what a balanced budget might actually require.

Can you do better? Fill in the eight percentages you believe should go in the red-font column, and I’ll add your proposal to the spreadsheet so we can compare.

Here are a few thoughts on the subject of balancing the US government budget.
First off, I will say we do not need a balanced budget. We simply need to grow the deficits at a rate that is slower than the growth of the economy. So if the economy grows at 4% it will double in 18 years, if the deficit grows at 2% it would take 36 years to double (All approximations, from the rule of 72) so in 18 years you could half the deficit relative to the economy if you just slowed it down to 2% growth per year, a reasonable level. Inflation too also helps pay back the deficit in cheaper dollars.
The best way though is to grow the economy, by becoming more productive and expanding output.
Raising taxes modestly would help too
Immigration is a great growth driver if it does not increase the deficits by much.

The big elephant for the USA is health care. About 16.5% of the US economy goes to healthcare. Other Western nations are lower. Germany 12%, Australia 10% etc. Since much of US government spending is on health care, fixing this will help fix the deficit as well. Too bad no one has a practical plan to seriously reduce costs. The health industry lobby is a huge money driver for all in Congress. Few politicians want to fix this.

Ramping up IRS enforcement would help bring in more money. A dollar spent on tax enforcement results in some 8 dollars more in collections. Why would any President cut the IRS?

Of course there is waste and fraud in the system too. One method of addressing future waste would be to allow a line item veto from the President. This structural reform would allow the President to veto wasteful spending only for the parts of the bill that are considered waste. Some Governors have this power in their state's government

Lastly, a few like Warren Buffet have advocated Congressional incentives for reducing spending. Imagine millions in incentive pay would truly be worth it if Congress could adhere to some deficit goals.

The USA budget deficit is around 125% of GDP versus Japan's 240% ratio. No one knows the tipping point where everyone will flee the dollar or cause a crash to the system. Pity the politicians in office that are around when a collapse happens. Japan has managed to lower their % of debt by using negative interest rates or very low rates like 1/4%. I don't think that the USA could do that. Few here would loan the government at those rates. I am not sure exactly how Japan manages that but they do have higher sustained inflation as a result and a weaker currency.

The most likely way to manage debt is to inflate it away. Thus, far the President seems to get the blame, though it is Congress that authorizes all spending.

 

[Richard T]

With the auto industry, Trump has made concessions, but I don't think Trump wants ALL manufacturing back because you are correct that if we were to bring back textile toys and all that other irrelevant stuff, it would be expensive. Where the news is for National Security, like everything war machine, healthcare, energy, shipbuilding, and rare earths. All that irrelevant stuff can still be imported from South Asia and South America. South Asia is already trying to take market share from China, which will benefit their countries.

But how do you feel about all the countries that reap billions in trade surplus with the USA and still tariff our goods? I understand the tariff we allowed the countries to place on our goods after WW@ because many countries had to rebuild, but 80 years later, once they are developed and major industrial nations, they still tariff American goods. Canada has like 60 billion trade surplus and still makes 300 million in tariffs. Not to mention our adversary, China.

I've said before that both admins recognised the need for national security, and I believe in this policy.

Yes, the USA has been too liberal with free trade. 10% across the board is greater than most Western nation's tariffs. Also, the system that has been in place. GATT and the WTO was largely American influenced. Uprooting that overnight and changing everything is far too extreme. We signed and created these institutions. Some of the US trade deficit is their own doing.
For instance lumber milling has been shutting down in the USA because some administrations were not leasing land as much for timber. The result was a greater dependence on Canada. Trump via Navarro is right on the non-tariff barriers too.
I saw this week an article on why electricity prices in the USA are now relatively too high. This means no likely increases in aluminum production here in spite of tariffs.

You are right for defense and security, the USA should increase their manufacturing presence for those items.

 

[Laodicean60]

The USA budget deficit is around 125% of GDP versus Japan's 240% ratio.

The difference between the two is that our debt 1/3 is owed to foreign countries with interest, which affects domestic spending, and I think Japan's almost all debt is in-house or lent by the people.

I think the tipping point is when we default on interest payments on the debt.

The most likely way to manage debt is to inflate it away. Thus, far the President seems to get the blame, though it is Congress that authorizes all spending.

Yes, it's political suicide to do it for whichever administration does it, and like you said, Congress for the last 30 years (no since we got off the gold standard) is the problem with all the spending and the bad MMT theory.

Have you heard that part of Trump's plan is to revalue the gold price and maybe back the currency with gold?

 

[Laodicean60]

For instance lumber milling has been shutting down in the USA because some administrations were not leasing land as much for timber.

I believe environmental policies (tree huggers) had a small part in this.

I saw this week an article on why electricity prices in the USA are now relatively too high.

Yes, and luckily, both admins have invested in this area because of data centers and AI, maybe. The latest is:

1.7 billion powerline build.

https://www.chicagobusiness.com/utilities/michael-polskys-invenergy-spends-17b-power-line-project

 

[doubtingmerle]

The waste in government affects everyone's tax dollars; the waste in the private sector affects their profit. This is why companies run more efficiently than the government.

LOL! I asked you, "Do you have any evidence that government waste is worse than what we see in the private sector?"

And in your response, you simply assumed you’re right! I asked for evidence.

Yes, I know competition can help private enterprise be efficient. But it can also lead to inefficiency, as companies work against each other rather than cooperatively. On the other hand, government has the advantage that its workers can be motivated by public service—not just by boosting the salary of a highly paid CEO.

Also, government-funded research is **publicly available**. Each researcher can benefit from the accumulated knowledge of those before them. In contrast, in private industry, individual discoveries are often siloed—each company must independently recreate or license research.

Come on, you are hell bent on arguing, and I'm not. When you see the government employees rising in that chart, how did they get there? THEY WERE HIRED!

Yes, of course. No disagreement there.

But that wasn’t the point.

The point was that you compared two completely different kinds of charts: one showing a **total** (federal employees), and the other showing a **rate of change** (private hiring). A rising total does *not* mean it’s increasing faster than something with a consistently high rate of change. That’s just a basic misunderstanding of what the charts represent.

It’s not about being “hell bent” on arguing—I'm just pointing out that your argument misuses data and makes an invalid comparison.

And did you think I was arguing AGAINST you? I was explaining my interpretation of what the admin is trying to do and what was needed to fill the gap. Sheesh

The original post asked what *changes* you would make to the proposed budget. Do you basically agree with the allocations I made in my column?

I think you need to learn about how the stock market works. The stock market is not the economy because out of 500 companies, only about 50 and their weighting within the index have caused the rise in that index, and also the sector (AI).

I’m not talking about a rise in the index.

I’m talking about a **decline in the total value** of the stocks in the S&P 500. For example, the total market value of S&P 500 stocks fell by 18% after Trump announced his tariffs. When he relaxed those tariffs, the market recovered somewhat, and is now about 7% below the pre-tariff level.

So no—investors clearly did **not** believe tariffs would increase profits or tax payments. They believed tariffs would reduce profits substantially—resulting in *less* taxable income and a lower overall valuation for those companies.

 

[doubtingmerle]

With the auto industry, Trump has made concessions, but I don't think Trump wants ALL manufacturing back because you are correct that if we were to bring back textile toys and all that other irrelevant stuff, it would be expensive.

How exactly are tariffs going to bring industry back? It often takes years to ramp up industrial production. Maybe if companies were confident that tariffs would remain high over the long term, they’d invest in building the needed equipment and infrastructure. But with current tariff policy being so erratic, there’s no guarantee what the rates will be next week—let alone next decade.

Tariffs are typically used when a country has an existing industry that’s struggling against foreign competition. They’re a tool to protect jobs that are already here—not to conjure up entire industries from scratch.

But how do you feel about all the countries that reap billions in trade surplus with the USA and still tariff our goods?

They reap billions in trade surplus? Sure—but they work hard for those billions. People in those countries labor in factories, often for very low wages, to produce the goods that we want.

In return, we give them dollars. We run the printing presses and hand them green paper with pictures of dead presidents. We get iPhones. They get currency. That actually sounds like a pretty good deal—for us.

And just to clarify: the tariffs they impose are paid by their consumers, not by us. Likewise, U.S. tariffs are paid by American importers and customers, not the foreign producers. So no—they’re not “making us pay” to send goods to them. That’s not how tariffs work.

 

[Laodicean60]

How exactly are tariffs going to bring industry back?

This is my last post. I'm sure you've heard in the news that the mention of tariffs has brought a couple of industries back to the USA.

https://www.reuters.com/business/companies-eye-us-expansion-lessen-fallout-potential-tariffs-2025-01-29/?utm_source=chatgpt.com

For your chart, your hypothetical balancing the budget in one year is unrealistic, even though your math looks right. Too many unforeseen variables like interest rates, recession, inflation, natural disaster, hot war, or a black swan event between now and the end of fiscal year 2025.

 

[loveofourlord]

you could if you guys be willing to get rid of the tax cuts for the rich wich is the worst goverment waste, I love how you have to get rid of everything that helps non rich people, but then waste all that money helping rich people.

 

[doubtingmerle]

This is my last post. I'm sure you've heard in the news that the mention of tariffs has brought a couple of industries back to the USA.

https://www.reuters.com/business/companies-eye-us-expansion-lessen-fallout-potential-tariffs-2025-01-29/?utm_source=chatgpt.com

That is an interesting link. Yes, one would expect that tariffs could bring some jobs to America. That, after all, is the general rationale for tariffs.

Not only could tariffs bring jobs here, but they’re also scaring jobs away. Volvo, for instance, is cutting 5% of its workforce in South Carolina because of the impact of tariffs—a sign of the negative consequences tariffs can also bring.

But all of this sidesteps what I pointed out earlier: investors believed the announcement of high tariffs brought down the net worth of U.S. companies in the S&P 500 by 18%. Even after Trump relaxed many of those tariffs, the market still values those companies roughly 7% lower than it did three months ago. If investors had expected profits to rise from the tariffs, stock values would’ve gone up—not down.

For your chart, your hypothetical balancing the budget in one year is unrealistic, even though your math looks right. Too many unforeseen variables like interest rates, recession, inflation, natural disaster, hot war, or a black swan event between now and the end of fiscal year 2025.

LOL! You were the one who said we needed to balance the budget—and seemed to suggest that relatively minor cuts from agencies like DOGE would make a significant impact.

The entire point of this thread was to show that balancing the budget takes a lot more than small symbolic cuts. The cutbacks by DOGE are already causing substantial damage and barely move the needle on the deficit.

If we truly wanted to balance the budget, something like my suggestion—a 25% increase in revenue and a 50% reduction in defense spending—would make more sense. But no, I was not saying this needed to happen immediately or to that extreme.

In fact, in the original post I said:

Finally, I offer an off-the-cuff attempt at a “fair” balanced budget. It increases tax revenue by 25% and cuts some important programs. It’s just a first draft to visualize what a balanced budget might actually require.

Can you do better? Fill in the eight percentages you believe should go in the red-font column, and I’ll add your proposal to the spreadsheet so we can compare.

So no—I wasn’t insisting on balancing the budget immediately. I was offering a sample of what a serious plan would look like if we actually wanted to achieve that goal.

I asked what plan you would propose. Instead of offering an alternative, you took potshots at mine—without putting forward a single number of your own.

 

[doubtingmerle]

First off, I will say we do not need a balanced budget. We simply need to grow the deficits at a rate that is slower than the growth of the economy. So if the economy grows at 4% it will double in 18 years, if the deficit grows at 2% it would take 36 years to double (All approximations, from the rule of 72) so in 18 years you could half the deficit relative to the economy if you just slowed it down to 2% growth per year, a reasonable level. Inflation too also helps pay back the deficit in cheaper dollars.
The best way though is to grow the economy, by becoming more productive and expanding output.
Raising taxes modestly would help too
Immigration is a great growth driver if it does not increase the deficits by much.

Growing our economy faster than the deficit may seem like a simple solution—but is it realistic?

We have indeed done what you suggest before. After World War II, our national debt was above 100% of GDP, but we simply grew out of it. That’s the staggering power of exponential growth. If the economy grows steadily each year, it can become massively larger over time and eventually dwarf the debt accumulated during earlier years.

Source: History of US National Debt - Economics Help

But can we do that again?

I’d love to believe that our economy could double, and then double again (and again), until the debt-to-GDP ratio becomes minimal. But that doesn’t seem practical anymore. The post-war economic boom was fueled by massive supplies of cheap oil, coal, natural gas, and minerals. We've already used up much of the easiest and cheapest of those resources. What’s left is harder to extract, more expensive, and increasingly subject to geopolitical tension and environmental limits.

Expecting endless growth on a finite planet is, frankly, madness.

If we can no longer rely on exponential growth to shrink our debt burden, we may need to reconsider the alternative: balancing the budget—or even running a surplus.

Should we bet that exponential growth will continue for decades to come—making the national debt a minor concern—or should we begin taking serious steps to reduce it now?