Here Are the Numbers. You Fix the Fiscal Cliff

Check the Top Stories section at Fool.com every weekday for our latest fiscal-cliff coverage. We won't stop till the madness does. To read previous stories in this series, follow the links at the end of this article.

Money in, money out. Balancing a budget or trimming a deficit shouldn't be hard.

Yet in reality, it's preposterously difficult. Every dollar of wasteful spending is someone's paycheck -- and that someone isn't going to bow out quietly. Every tax deduction can be seen as either a boost to the free market or an unfair subsidy to a particular social class. Budgeting is about much more than arithmetic. It's politics, economics, psychology, philosophy, lobbying, and public relations all rolled up into one big, ugly brawl.


Over the next few weeks, Congress and the president will try to hammer out a budget deal in order to avoid the fiscal cliff. If elected leaders fail, taxes will rise, and spending will be cut come Jan.1 -- there's something for almost everyone to hate.

Any final budget deal will probably attempt to cover a 10-year period, but that's more formality than substance. Budgets are made on a yearly basis, and anything done today can easily be overturned tomorrow. The whole reason we're having a fiscal-cliff debate is that no one wants to accept the conditions of previous budget deals, which shows how fickle the deals really are.

So, Fool readers, let's look at this on a one-year basis. Here's what federal government spending looks like this year:

Source: Office of Budget and Management; Federal Reserve; author's calculations. Income security = unemployment benefits, food stamps, etc.

And here's what tax revenue looks like this year:

 Source: Office of Budget and Management; Federal Reserve; author's calculations.

We're looking at a deficit of about $1.3 trillion.

And for good measure, here is the cost in lost tax revenue of the top 10 tax deductions:

Source: Credit Suisse.

Those are the numbers. Now it's your turn. 

How would you fix the budget deficit? Share your plan in the comment section below. 

Wrapping things up
The Motley Fool wants to help investors understand the fiscal cliff and put it in its long-term context. This article is part of a series discussing the fiscal cliff. You can find the three previous articles below:

The article Here Are the Numbers. You Fix the Fiscal Cliff originally appeared on Fool.com.

Fool contributor Morgan Housel has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

What is Short Selling?

Make a profit when stocks prices fall.

View Course »

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Add a Comment

*0 / 3000 Character Maximum