Here are a few thoughts on the present state (and cause) of our budget crisis. it’s fair to say that today big budget deficits are and have been driving our national debt into dangerous territory. They are projected to be $744 billion for Fiscal Year 2014, raising the total national debt to nearly 415 trillion.
That’s an amazing amount of money. Since we were running a surplus as recently as the Clinton administration, what happened? where did all that red ink come from?
Between 1980 and 2009, the national debt grew from $700 billion to nearly $8 trillion. Of the past five presidential administrations, the only one during which there was no net increase in the national debt was Bill Clinton’s.
Where did it go? The two greatest rises in the debt were during the 1980s and the 2000s.
- During the Reagan administration we cut taxes while engaged in a military spending race with Russia and raised the national debt by $2 trillion:
- During the Bush administration we did these things:
- We increased spending on wars in Afghanistan and Iraq (without a plan to fund them);
- Increased spending on Medicare prescription programs (without a plan to fund them)
Taken together these two items added $4 trillion to the debt.
- Plus we made dramatic cuts in taxes, which, while not directly adding to the deficit, decreased our income and ability to pay on it.
The highest our national debt has been in relation to the Gross Domestic Product was after the Great Depression and World War II, when it reached nearly 109 percent.
During the present administration, the national debt, in relation to the GDP, increased from 54 percent to around 80 percent, largely due to automatic increases in things like food stamps, welfare, and unemployment insurance, that kicked in after the Great Recession, plus the continued costs of the unfunded prescription drug programs and lingering unfunded wars which it inherited.
So, here's the present problem. The task of reducing the current $14,000 trillion debt (nearly $45,000 for every breathing human in America) is truly daunting. It can only be done with a combination of budget cuts and tax increases. Cuts alone will not haul the water.
The largest expenses are Social Security, Medicare, Welfare ($745 billion in 2011) and the military, which total $2 trillion of the $3.6 trillion annual budget.
All of the expenses (veterans’ services, interest on the national debt, public health, education, transportation, government operation, etc.) add another trillion dollars. That leaves only $600 billion for everything else.
There's surely some fat left in those numbers, but starting with Al Gore's "Reinvention of Government" program in the Clinton Administration, a lot of excess "Waist, Fraud and Abuse" (the catchphrase used by budget cutters) has disappeared. Today to make any meaningful reduction would require cutting down past muscle and bone and into the realm of self-mutilation and amputation. In other words, without raising new money, a budget surplus cannot be achieved without hurting old people (Social Security) sick people (Medicare), poor people (Welfare), and the military. Democrats have a historic (though languishing) aversion to cutting entitlement programs and Republicans have an odd, near-sociopathic hatred of anything that lowers military spending. So, changes will be difficult.
The only real option for closing the deficit gap is raising taxes, which also usually elicits howls of protest, especially from the very wealthy and from the lower middle class who have been led to believe that if taxes are cut on the wealthy, they will (eventually) benefit from it.
Two factors have conspired to shrink the government’s tax income.
- There is less and less money coming in from the more affluent. Over the last twenty-five years, they have very successfully lobbied Congress to lower and keep low the tax rates on all upper brackets. The top maximum tax rate is now 39.6 percent (up from a low of 35 percent) down from around 70 percent in 1980 — a period of economic prosperity for all.
- There is less and less money coming in from the middle class. Their numbers have been been decreasing and the median income has been going down, resulting in declining tax revenue from that source.
Today there are probably only three broad proposals that will balance the federal budget and pay down the national debt:
- Apply means testing to cut Social Security and Medicare costs by reducing benefits to those who don’t need the full amount, and critically scrutinize and trim military spending.
- Increase tax rates on the upper income brackets.
- Encourage more equitable sharing of the profits produced from growing productivity with the middle class, which will boost the economy and create more income tax revenue.
Also, counter-intuitively, channeling money back into the hands of the poor and middle classes is cost effective and will actually do a little to lower the deficit. If the poor and middle income brackets have more money in their pockets, they will pay more in income and sales taxes and will pay more to the local merchants who will hire more staff and buy more products, which will in turn raise the amount their recipients will pay in income and sales taxes. It’s called the “multiplier effect.” People who live on the edge don’t hoard their incomes stimulus money, they spend it and that helps the economy. Wealthy people tend to hoard or invest their windfalls, which is not awful, but it doesn’t give as much bang for the buck in terms of helping the over all economy. Economic stimulus actually helps the economy grow and because it multiplies and raises the incomes of others and increases tax revenues, it actually does little harm to the deficit. That idea is of course considered satanic and evil and blasphemous to the Rush Limbaugh-Tea Party-Fox-Republican front, but it is nonetheless true and has been born out by a number of studies.
The crux of this discussion is what should be the role of government. Shouldn’t it be to do the most good for the greatest number instead of serving the interests of just a few? Just a thought.