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The Trillion-Dollar Deficit, and What It Means to You

February 8, 2010

President Obama's proposed $1.3-trillion budget deficit will be the subject of much haranguing and scrutiny in the coming months. Opponents will assail the shortfall as a giant step toward the economic destruction of the Union and will use it as a fiscal call to arms as the November mid-term elections draw nigh.

But who really understands the budget? A trillion is a huge number to grasp. Journalists, it seems, have a hard time comprehending it, which explains why few news stories put the budget deficit in terms the rest of us can easily appreciate.

Any good reporting of a budget, whether it comes out of Washington, your state house, or your school board, should always include the basic information: revenues and expenditures. How much does the entity expect to take in, and how much does it expect to spend?

Financial reporters understand this, because most of them have business degrees or some background in accounting. I've tried unsuccessfully for more than twenty years to convince heads of university journalism programs to require their graduates to take one or two accounting courses. Here's why. Most J-school graduates will cover local government for small-town news organizations. Passage of the annual budget will be one of the bigger stories of the year. The budget is a fertile source for enterprising journalists in search of waste, fraud, and abuse stories. But you have to know a credit from a debit, an asset from a liability, and revenues from expenses.

Journalism department heads come up with the same academic excuse for not requiring their students to acquire the financial tools needed for good, basic reporting. Accounting courses, they say, are in the business school. End of discussion.

Well, guess what? Business schools now require writing courses.

The Houston Chronicle devoted about thirty column inches, including a graphic, on the proposed budget, but omitted revenues and expenses, which the budget lists as receipts and outlays. I mean, come on, the federal budget isn't baseball where you can get away with reporting just a player's batting average. A truer picture requires knowing total hits and at bats. A player may retire with a batting average of .500, which sounds impressive until you learn he had one single from two times at bat.

The 192-page federal budget (available at whitehouse.gov/omb) is best explained for us regular folks in terms of a household budget. What is our income this week? What are our expenses? What's left over?

The proposed budget estimates receipts of $2.5 trillion and outlays of $3.8 trillion. Subtract outlays from receipts and there's your $1.3-trillion deficit.

You may understand trillions, but I understand hundreds. A proportional reduction brings the budget story closer to home.

Say you expect to bank $493 in cash money each week, and you plan to spend $737. Well, you'd be in the hole $244 by the weekend because you overspent your income by about 50 percent.

Where do you cut back? Unlike the government, you can't print money, and no bank will give you a loan because of your fiscal irresponsibility. So, you decide not to eat at restaurants and to forgo that flat-screen TV. Those are discretionary expenses, unlike your rent or mortgage, utilities, car payments, and other legally binding financial obligations, also known as mandatory expenses.

The federal government also has mandatory and discretionary spending. Mandatory programs (Social Security, Medicare, Medicaid, TARP, and others) account for around 57 percent of total outlays, or $2.165 trillion in the proposed budget. The reality of that figure hits home when it's compared to income. Mandatory programs take 85 cents of every dollar going to Washington.

See what we've just done? We've converted trillions of dollars to pennies, a much easier amount to understand. Using pennies we see the federal government has only 15 cents left out of every income dollar to fund Agriculture, Defense, Interior, Homeland Security, NASA, the Environmental Protection Agency, the Small Business Administration, and the rest of the government agencies and programs.

But, the government needs 65 cents to fund all of its discretionary outlays. That's why it goes into debt by 50 cents for every dollar it takes in, which comes to $1.267 trillion.

So that's the budget. But just how much is $1 trillion? Well, it's a million million dollars. And if you placed $1 bills end to end, the chain would go up to the moon and back 200 times. Something NASA won't be doing even once under the Obama budget.

Copyright ©2010 John David Powell



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