I have attempted to write this article five times, and I suppose what makes it difficult is when one begins to talk about things like the federal government’s “fiscal cliff,” taxes, or the proper role of government. The discussion can become so multi-faceted that it becomes unwieldy. So, I won’t go there.
Instead, I am challenged to think about the whole notion of revenue both from the private sector and federal government perspective.
Like many of you who may have a business or took economics in school, we learned that revenue is the proceeds collected by an entity in exchange for product or services.
For a company, revenue is used to pay operating expenses (like employee wages, costs of goods sold, utilities) and liabilities (like rent, franchise fees, etc.). What is left over is profit.
Efficient companies try to find an optimal balance where their profits are maximized, while expenses and liabilities are minimized.
In a free market system, of course, the amount of profit one makes is influenced by competition/supply, and demand, or what consumers are willing to pay. Both the non-competitive price hikes and severe cutbacks can lead to unintended loss of profit.
Opponents of this profit model, however, argue that “big businesses” have an unfair advantage, because they use marketing and economies of scale as an “unfair” advantage to squeeze out the “little guy,” thereby minimizing true competition. The progressing of this way of thinking has led to increase chatter in the public square about how making profit is a negative thing.
In contrast, the taxes, aka “revenue,” received by the federal government seem to operate very differently. While taxes/revenue are also used to pay for the projected operating expenses and liabilities — like our $16+ trillion dollar deficit — there is no profit motive to encourage operational efficiency.
In fact, regardless of the state of the economy, the federal government seeks to increase its expenses, for it calculates an automatic percent increase in its annual budget ranging from 3 percent to 8 percent every year.
Thus, talks about spending cuts are essentially reductions in the rate of spending increases and not actually a decrease in spending.
Additionally, the federal government has virtually no competitors for providing its services. Anyone who has owned a company or managed a department budget can tell you, without competitors or little external pressures, there is little incentive to run operations efficiently. This simply invites massive amounts of wasteful spending, and in the case of the federal government we are talking multiplied billions.
So, private sector profits and wasteful spending government has perceived negatives. However, which, if either, is the greater evil?
Those who believe in free markets argue that there are systemic checks in place to minimize obscene profits. However, the media will always give you a story of some big corporation letting go hundreds of employees while their corporate executives retain their jobs, and in some cases, get bonuses.
As examples such as these become a part of America’s consciousness, the desire to move away from free markets to a socialist structure becomes more attractive.
We rarely hear stories about how the federal government plans to spend, and actually does spend its proposed $4.5 trillion budget. Instead we are distracted by how political parties don’t get along, and threats of tax increases.
I imagine the American people assume, in addition to Defense, the federal government uses its budget on things like schools, roads, and unemployment. However, these are all constitutionally the responsibilities of state and local governments. So, where exactly is the $4.5 trillion being spent?
I imagine if more Americans asked this question, we’d hear more stories about it and hold our federal officials more accountable.
While big profits and wasteful spending may both have their negatives. I suspect that if the American people truly knew how much wasteful spending there was in the federal government, and how this dwarfs the amount of profits earned by “big businesses,” there would be far greater outcry from the American people than there is presently.
[Bonnie B. Willis is co-founder of The Willis Group, LLC, a Learning, Development, and Life Coaching company here in Fayette County and lives in Fayetteville along with her husband and their five children.]