When I’ m approached by someone seeking advice on how to get out of their credit card debt, I use a standard methodology. Just for fun, I decided to see if I could apply the same principals to the U.S. Deficit (currently $12 trillion).

First thing I do is to ask the client the following questions:

1. How much is your debt?
2. Do you have the cash to pay it off?
3. Do you have enough to settle for less than owed?
4. Can you sell some assets?
5. What is your income?

What We Spend Our Tax Dollars On

I did a little digging to come up with some current figures. Here is the federal spending outlay for 2008:    (I’ve cited proposed 2010 budget figures where possible.)

• National defense – Fiscal 2008:  $624 billion. Proposed 2010 Budget Spending: $687 billion

• Education, training, employment and social services — These programs assist citizens in developing and learning skills to expand their potential opportunities and job placement possibilities.  Fiscal 2008:  $89.1 billion.

• Health – The Federal Government helps meet the nation’s health care needs by financing and providing health care services, aiding disease prevention, and supporting research and training.     Fiscal 2008:  $280.6 billion.

• Medicare – Fiscal 2008:  $390.8 billion.  Proposed 2010 Budget Spending:  $425 billion (Medicaid: $262 billion)

• Income security – Income security benefits are paid to the aged, the disabled, the unemployed and low-income families. Included within this classification are programs such as general retirement and disability, public assistance and unemployment compensation.  Fiscal 2008:  $432.5 billion.

• Social security – $617 billion for fiscal 2008.  Fiscal 2010: $696 billion

• Interest on Outstanding Debt – Fiscal 2008: $248.9 billion.  Proposed 2010 Budget Spending:  $136 billion (why it dropped, I’m not sure.)

Other miscellaneous budget spending for 2010 (note: these are 2010 budget requests):

• Health and Human Services – $80.5
• Transportation – $72.3 billion
• Veterans Affairs – $53.0 billion
• State and Other International Programs Funding – $47.1 billion
• Education – $46.7 billion
• Housing and Urban Development – $43.7 billion
• Homeland Security (DHS) – $41.9 billion
• Energy – $26.3 billion (A decrease of $7 billion from 2009)

Total Debt

The July 2009 US Treasury Accounting Report shows an overall debt of $12,538,079,605,684. The good news is that we are not “underwater”. Our total net position is $66,787,339.

What are the typical strategies for dealing with overwhelming debt?

Let’s see if we can apply the basic strategies of getting out of credit card debt to the US deficit.

Sell Assets
Could the US sell some of its assets to get out of debt? Probably not. The accounting statement for assets has one entry called “Intra-Government Due from the General Fund, Net” which accounts for most of the “assets” on the Treasury balance sheet, totaling $11,716,667,639,443.

Due from the General Fund is defined as “cumulative investment income which has not been remitted to the state”. This is accountant speak for investment interest we haven’t gotten yet – or written off. In this economy, will these funds appear? Maybe.

Settle Debts For Less Than Owed
If you’re drowning in debt, one of the things you can do is call your creditors and see if you can negotiate a settlement for less than owed. I’m just guessing here, but I think the US announcing they are going to try and convince a creditor like China to settle debts for less than owed wouldn’t go over well with the international financial community.

Decrease Spending
So where do we cut? Let’s look at the most expensive items. Social Security? Defense? Medicare?

I am not familiar with government-run healthcare programs like Medicare, but I have worked in the government defense industry. The waste I observed in the design, development and manufacture of products used for US defense was mind boggling. It’s one of the reasons why I’m not an engineer any more. I think some cuts could be made here without decreasing the strength of our armed forces.

Come Up With More Income
Ah – the most controversial option. The obvious option is to raise taxes or at least tax revenue. I’m going to throw out some ideas on how this could be done.

1. Raise the tax on gasoline. Aren’t we trying to decrease our dependence on foreign oil? If this occurred, couldn’t we decrease our participation in the Middle East conflicts? This would decrease our defense spending (our biggest budget ticket item).
2. Create more jobs. We all heard about those “shovel-ready” jobs that were supposed to be created. Hey – you in Congress – get on this right now! More jobs means more tax revenue.
3. Legalize marijuana Yeah, this sounds like a radical idea, but look at California, who is benefiting from the tax revenue of medical marijuana sales. De-criminalizing pot would also reduce incarceration costs. a 2002 study estimated that 135,488 inmates were behind bars for felony marijuana offenses, costing $2 billion annually to house them. This figure does not include the other $7 billion used to enforce anti-marijuana laws.
4. Raise Income Taxes How much would the US need to raise income taxes to offset the 12 trillion dollar deficit? The answer is scary. According to this study, the total US personal income in 2008 was: $12,086,533,576, almost the exact amount of the deficit. Since the deficit includes the the tax revenue of $2 trillion the U.S. receives, it means that the tax rate would have to be close to 116%.

In Summary

I haven’t the vaguest idea how the U.S. can get completely out of debt, but I may have some ideas on how to reduce it. How about you? Do you have any ideas? Disagree with my numbers? Tell us by leaving a comment!

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