Percentage Based Budgeting

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Sustainable Social Security is a mathematical calculation. There are no secret formulas or magic tricks. Congress and the President refuse to deal with the math. Politics is overwhelmingly emotional because most people make most of their decisions based upon irrational emotions rather than unemotional rational thought.

Benjamin Franklin was known for the decision making “T”. Franklin would draw a “T” on a piece of paper and on top of the “T” he would write pro on the left side, con on the right side, and then set about listing all of the pros and cons of whatever it was that needed a decision. Generally speaking, the side with the most attributes was the one Franklin would go with. Unfortunately, special interests and a self-serving desire for re-election, far too often replace the unemotional and rational decision making process needed in Congress and the White House.

Here are the facts regarding the probability of survival at age 65; our traditional age of retirement in the United States.   

Based upon these percentages, the hard cold facts regarding the sustainability of Social Security can be ascertained.

The problem as to how much for how long is simple to solve through mathematics and the acceptance that there must be a sliding distribution scale based upon population, mortality, current revenue, inflation, and assets under management.

To accomplish this, Congress must be mandated to budget based upon percentages. If this is done, the problem of inadequate funding for Social Security would be immediately eliminated.

How?

It is utterly simple in theory and reality. Successful people and organizations function on budgets. Budgets are either based upon dollars or percentages. Those that budget based upon percentages are more likely to succeed than those who budget based upon dollars. From a personal finance perspective, this is known as envelope budgeting. For example, if a person begins working at age eighteen with a goal to save fifteen percent of their gross income each year for retirement, he will have much more than a person who budgets for a fixed dollar about, say $2,000 without taking into consideration inflation. As time passes, the one who saved fifteen percent will have much more income during retirement due to increasing wages, compounding, and the time-value of money.

The recent recession was heavily influenced by Congressional pressure on lending institutions to lend money to those who should never have been given money, to buy homes larger than they should have purchased, under terms and conditions that generally appealed to the emotionally based short-sighted among us, and which violated the reasonable and historical percentages for housing to income ratios. As these borrowers began to miss payments, a domino sequence of events began that resulted in what we all witnessed. Coupled with traditional banking, mortgage brokerage, and investment banking greed, fraud, and market manipulation, many in the nation experienced a massive loss of wealth through no fault of their own and will be affected in some cases for the rest of their lives. As this took place, tax revenues decreased; however, federal, state, and local expenditures were generally maintained at pre-recession levels as debt was merely piled upon existing debt.

Funding beyond current revenue is fine as long as there is an adequate trust fund to pick up the slack; however, to incur debt inhibits growth and financial security. The unemotional mathematical among us understands that the day of reckoning must take place and the balance sheets must balance. And so, by budgeting based upon percentages, we will eliminate political hijinks we witness on a daily basis under the current process of pork filled legislation.

Percentage based budgeting based upon the prior fiscal year revenue is all we need to do to fix the budget problems in the nation. Here is how it works:

1. Primary Allocation:

a. Congress must budget based upon percentages.

b. Broad categories must be established such as national defense, social welfare, infrastructure, national debt, trust fund funding, etc…

c. Each broad category should be represented by a Cabinet Secretary; Secretary of Homeland Security, Secretary of Energy, Secretary of Social Security, etc…

d. Cabinet Secretaries shall be appointed by the President with confirmation by the Senate.

e. Debate then begins as to what percentage each broad category should receive.

2. Secondary Allocation:

a. Upon approval by the House, Senate, and President of the Primary Allocation, each Cabinet Secretary shall then remit to Congress their budget which shall be based solely upon percentages for not more than twenty categories; this number should be subject to debate but restrained due to rational span-of-control competencies.

b. Congress shall then discuss, debate, and vote on the Secondary Allocation and upon approval with the President, the national budget allocation is established for the future fiscal year based upon the receipts for the prior fiscal year.

3. Executive Branch Administration:

a. Each Cabinet Secretary shall then be responsible for the execution of their segment of the budget as approved by the Congress and President.

b. The degree of Presidential involvement in day-to-day operations and expenditures by Cabinet Secretaries shall be at the prerogative of the President.

4. Congressional Oversight:

a. The House of Representatives shall establish committees as the Speaker of the House deems appropriate for oversight purposes regarding matters of domestic expenditures; excluding Homeland Defense and the Military.

b. The Senate shall establish committees as the Senate Majority Leader deems appropriate for oversight purposes regarding matters of Homeland Security, the Military, and Foreign Aid and Assistance.

c. Both the House and Senate may alter expenditures established by a Cabinet Secretary.

i. Those matters of financial oversight that originate in the House regarding expenditure alteration shall require a super majority of two-thirds with a simple majority in the Senate for concurrence.

1. Because a super majority is required by the House for approval, a Presidential veto shall be prohibited.

2. A super majority shall not be required by the Senate in order to restrain the power of an imperial presidency.

ii. Those matters of financial oversight that originate in the Senate regarding expenditure alteration shall require a super majority of two-thirds with a simple majority in the House for concurrence.

1. Because a super majority is required by the Senate for approval, a Presidential veto shall be prohibited.

2. A super majority shall not be required by the House in order to restrain the power of an imperial presidency.

Now back to Social Security.

When the Secretary of Social Security has a Primary and Secondary Allocation, their job shall be to execute the wishes of Congress and the People within the confines set forth. If there is not enough money to pay the same amount in benefits in the current fiscal year than was paid in the prior fiscal year then the Secretary will be required to reduce the amount each Social Security recipient receives on a rational and reasonable basis, reduce cost-of-living adjustments, and/or delay the starting date for future recipients. It’s just that simple; nothing more or less.

If prior Secretaries failed to adequately fund Trust Funds and/or the investment returns failed to meet expectations, then responsibility for fault will be easily attributable to Presidential Administrations and Congress.

Paying down national, state, and local debt, balancing budgets, and providing for future needs with adequate trust funds will never take place if we continue to use a dollar based budget that is based upon projected revenues rather than prior year known revenues.

You cannot spend it if you do not have it. If We the People demand a fundamental change in the way government agencies are funded, budgeted, and supervised, we can return the nation to the financial powerhouse that is required to maintain world order and stability for all.

Think About It.