Follow-up to soda tax

I want to revisit my last post to try to help people understand my dilemma in considering a new tax. You see, like most people, I do not want to pay higher taxes than I already pay, nor do I want to pay taxes I do not already pay. However, unlike most people, I am aware of the unsustainable path of the federal budget due to future social security, medicaid, and medicare liabilities (see my reference to p.31 of the CBO's long-term budget outlook in my last post). Hopefully, as a reader of this blog, you are learning a thing or two about this topic as well.

Unfortunately, the notion that we are on an unsustainable path is proffered by many to be attributable to recent events (think TARP under President Bush and ARRA under President Obama). Those people are wrong. Remember, the federal budget comprises two distinct pieces - discretionary and mandatory spending. The split between the two right now is roughly 60% mandatory / 40% discretionary.

Mandatory spending is mostly social security, medicaid, medicare, and interest on the national debt. Mandatory spending does not require annual authorizations or appropriations from Congress.

Discretionary spending is everything else. The Departments of Defense, Agriculture, Interior, Transportation, Health and Human Services, Treasury, etc. receive annual appropriations from Congress. That means if spending is very high one year, it need not necessarily be high the next. TARP and ARRA fit into the discretionary category. The key is that $1 of discretionary funding appropriated today does not put the government on the hook for spending that $1 every year, plus inflation and other cost of living adjustments.

So in terms of a long-term outlook, the spending categories on the mandatory side should be of great interest to most people. Those are the liabilities that, projected out over the next 80 years by our friends at CBO, will eventually keep this country from functioning properly. Liabilities associated with Medicare comprise the largest chunk of the upward curve.

So where does that put us? We can all get on our soap boxes and high horses and argue over the wisdom of putting $787 billion of public funds into the economy. But that's like shushing a talker at the movies when the theater is on fire. It feels good to talk politics, wasteful spending, earmarks, and such, but when someone throws out the present value liability of almost $60 trillion due to mandatory spending programs, nobody is really sure what to say.

Hopefully this post gives you a little more insight into my thought process. I don't want to cause panic, but is it a crime to yell fire! if the theater really is on fire? The way to help the country's finances back onto a sustainable path is to at least honor the elephant in the room with a passing mention. We must either get social security and (especially) medicare spending onto a sustainable projected path by reworking benefits or finding ways to raise money to pay for them. The answer is likely some combination of the two. My last post offered an idea that is tough to swallow. I'll keep working to find other solutions.