Government Math

Million, Billion...What's the Difference?

A one-mile high stack of dollar bills is about $1.4 million. A billion dollars would be about 70 miles high.

The first thing Congress did after the election was cut taxes by almost $900 billion. That stack of dollar bills would be 60,000 miles high – enough to go around the earth twice, and then go from Washington, DC to Moscow. And back.

That was my best Christmas present: lower taxes for two years. PLUS a cut in social security taxes, which will make my paycheck go up about $150 per month this year. (Of course, if I don’t get a raise at the end of this year, my paycheck will go down next January.)

Voters like tax cuts. And Congress loves to please the voters.

Voters are also screaming for budget cuts. Congress knows how to talk the talk. But it hates the walk because taking money away pleases very few voters.

Government math is hard to understand. Maybe big numbers are just hard to understand.

The new Congress is now wrestling with budget cuts. The Republicans' “Pledge to America” promised $100 billion in spending cuts. But after a week of facing the realities of the budget, they have reduced their target to $50 billion with some whispers that even $35 billion is going to be hard to reach.

How much is $100 billion? A stack of dollar bills about 700 miles long – about the distance from Washington, DC to Chicago.

The federal government spends about $275 billion per month and brings in about $175 billion per month, leaving a monthly deficit of $100 billion per month. So $100 billion in spending cuts would be the equivalent of the federal deficit for one month.

These are huge numbers and the math is very difficult. It reminds me of a situation I was in about thirty years ago when a client of mine refinanced a $2 million loan. I took the $2 million check from the new lender to the bank and asked that it be deposited immediately so that we could write a check for $2 million to repay the old loan. The teller told me that we would have to wait three days.

I asked for an exception. The teller talked to a vice president and we were able to repay the old loan immediately. The teller apologized and said, “I don’t handle $2 billion deposits that often.”

“That’s $2 Million,” I said, “Not $2 Billion.”

The next thing I heard was the budget lesson of a lifetime: “Million, billion? What’s the difference?”

Maybe that teller was right. Is there a difference? Can we understand what this is all about? Maybe this is the new math.

Last month, Congress reduced revenues by almost $900 billion and this month, promised to cut spending by $100 billion, and now hopes to squeeze at least $35 billion out of budget expenses.

Think about it this way: The next time your income goes down $9, tell your family that that you are going to reduce the family expenses by $1. Then actually cut expenses by 35 cents. That’s the new congress. Declare the family victorious for being fiscally responsible. That’s the new math. That’s the new Congress.

David Post is the owner of a small business that was founded in Washington, DC and is on Inc. Magazines list of the fastest growing companies in the US. He was a professor at American University and Georgetown for 10 years. Contact him at: editorial@Georgetowner.com

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Sun, 21 Sep 2014 10:06:57 -0400

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