Applying Logic to the Budget Compromise

April 13th, 2011

As I’m sure you’re well aware, last week’s tense debates on the U.S. federal budget threatened to result in a government shutdown.  If this had happened, 800,000 “non-essential” federal employees would have found themselves on mandatory unpaid leave as of Friday at midnight.  National parks and passport offices would have been shuttered; people who filed tax returns by mail would have waited indefinitely for their refunds and consumer spending would have stalled.  About one million essential workers—those in security or air traffic control, for example—would have been asked to come to work without pay and without the guarantee of retroactive compensation.  These compounding effects could have derailed the economic recovery.  Fortunately, lawmakers found a way to work out a compromise at 11:00 pm on Friday night, just one hour short of the deadline.

Knowing these facts—and nothing else—I would imagine most people would assume Democrats and Republicans were at odds over a fairly large sum of money and difference in opinion.  After all, why would either side risk such potentially dire consequences for the American people without good reason?

In the end, the budget compromise essentially came down to $5.5 billion dollars.  In short, here’s my logic on that number.  On Monday, April 4th, President Obama offered a compromise that would cut $33 billion from his proposed budget.  The next day Republican House Speaker John Boehner rejected the compromise and in a statement replied: “Despite attempts by Democrats to lock in a number among themselves, I’ve made clear that their $33 billion is not enough.”  In the final compromise figure—the one from Frday night–the government would cut $38.5 billion from its fiscal spending level in 2010.  So by logical extension (not usually the recommended tool when analyzing the U.S. government, but this blog is a bit of a thought experiment) if $33 billion was “not enough” for Boehner and $38.5 billion was enough—lawmakers. nearly shutdown the federal government and put the brakes on the economic recovery over the sum of $5.5 billion.

Let’s assume $5.5 billion was worth the game of brinksmanship.  That’s, of course, very debatable as $5.5 billion is about a half of a percent of the federal government’s annual spending ($1.049 trillion).  Okay, but as I said, this blog is a thought experiment which is underpinned in logic.  So if $5.5 billion is worth the hours of negotiations and the possible economic security of our nation, $100 billion must be 18 times more important.  In fact, if it turned out that the U.S. government is missing out on $100 billion in revenue and if last week’s budgetary warfare was anything more than showmanship, John Boehner should be jumping up and down like the mad hatter or at the very least spilling a tear or two.

This month the majority of Americans will file a tax return with the IRS.  In the words of Senator Carl Levin this is a “painful, but patriotic duty to a country we love.”  But there are a select number of corporations and individuals who do not do this patriotic duty.  Those entities use a system of loopholes to avoid paying a collective total of about $100 billion per year to the U.S. government.  That’s 18 times the compromise amount of $5.5 billion.  Senator Levin pointed this striking fact out—for about the hundredth time—at a breakfast briefing on Capital Hill Monday, where Nicolas Shaxton introduced his book on tax havens, Treasure Islands.

And yet…here I am.. still holding my breath for John Boehner to sit up and take notice.  Maybe he didn’t get the memo.

Written by Ann Hollingshead

Follow @FinTrCo