If there was one thing as predictable as the planetary orbits, it was the ultimate failure of the great congressional deficit-reduction commission, which was supposed to plot a sure path to budget surpluses. But the markets reacted as if the commission’s surrender this week was a shock, and there is no doubt that the mood of the American people soured even more. Can the approval rating of the U. S. Congress sink lower than 9 percent? It surely will.
Still, there are reasons to be not so pessimistic. The deficit picture will improve even with paralysis, that is if the economy continues to improve even at the recent snail’s pace. The second-largest contributor to the deficit was a $500 billion decline (by fiscal 2009) in annual government revenues from the recession and the 2008 financial collapse, and the eventual recovery of the economy and government receipts will cut the deficit by a third. Congressional inaction by the end of next year, which seems likely, also will restore the tax rates of the Clinton era. You may remember the last four years of Clinton for the cumulative $558 billion in budget surpluses, which paid down the government debt, and also for the most furious job growth in U.S. history. Would it be so bad to return to the policies of that halcyon time?
Of course, those taxes will affect most of us at least a little and not merely families earning more than $250,000 a year as President Obama sought. Democrats, for obvious political reasons, want to restrict the restored tax rates to higher incomes and the most profitable corporations. But if we’re serious about eliminating deficits and cutting away at the gigantic national debt, we should all be willing to make some sacrifice. The awful truth about America today is that all of us believe that others, not us, should make the sacrifice.
Both parties must share some blame for the failure of the deficit-reduction panel, which was made up of equal delegations of Democrats and Republicans. But the Republican contingent had a more rigid mandate than did the Democrats, which is what defines the two parties today. Republicans insisted that the deficit had to be eliminated entirely by reduced federal spending, which would mean massive reductions in Social Security, Medicare and Medicaid, which account for about 60 percent of all government spending besides defense and interest payments on the debt. They were solidly against restoring any taxes on higher incomes and corporations. Democrats, following the president’s lead, would cut away at future social security and health-care benefits but only if it was matched by the restoration of some taxes on higher incomes and the closing of corporate tax loopholes.
The rising debt, which will soon hit $15 trillion, counting what we owe ourselves, is indeed daunting to contemplate. While the debt is not as scary as Europe’s—U.S. debt still sells for only 2 percent, a measure of global confidence in America—stabilizing it ought to the government’s No. 1 priority, that is, after getting the economy moving and creating jobs.
It may be helpful to review just how we got here, from the end of the Clinton era and its string of balanced budgets and economic growth. We know that the consecutive rounds of tax cuts between 2001 and 2005 undermined revenues, but what about all the spending growth that accompanied the revenue cuts?
Military spending, counting exploding veterans benefits from the Middle East wars, rose from $350 billion in 2001 to $910 billion in the year just ended. In an admittedly oversimplified accounting, that is some $550 billion of the yearly deficit. If Congress does nothing about deficit reduction, which seems likely until after the 2012 elections, defense spending must be sharply reduced under the terms of the debt-ceiling package that Congress enacted last summer. In the wake of the collapse of the debt-reduction initiative, Republicans are mustering to stop the military cuts. President Obama, too, says reductions of the magnitude that are required by current law would jeopardize global security. But sizable reductions in defense outlays must be a part of a serious debt-reduction program.
Annual Medicare outlays have grown by $277 billion and social security by $316 billion since 2001, owing to the aging of the baby-boom generation and the general spiraling of medical costs. Medicaid, which pays for long-term care of the aged and disabled and for health insurance for children and some poor adults, rose by comparable percentages. The new health-insurance reform law will curtail the growth of Medicare and Medicaid if Congress permits all its initiatives to take effect in 2014 and beyond, but Congress—perhaps a more responsible one after the 2012 elections—must do more to restrain those costs.
Republicans have spent most of the time hammering at other government spending—that associated with business regulation like environmental and consumer protection, financial regulation and workplace safety. But that is not a serious budget issue. All those functions account for a tiny fraction of the budget. All the government’s environmental work, for instance, consumes only two-tenths of one percent of the government’s outlays, although Republican rhetoric would have you believe that it is driving us to bankruptcy. There is a legitimate interest in staying the government’s hand in insuring clean water and air, but it is a philosophical issue, not a budget matter.
So let us not panic about the deficit but resolve to hold our congressional members accountable for their political posturing in the next election and hope that the rest of the country does, too.
