How Can We Fix the Deficit?

Discussion of the Week
The House passed yesterday a stop-gap spending bill to keep the government operating through Mar 18. It would keep most agencies operating at their current funding levels but also enact about $4B in cuts as a down payment of sorts for the GOP package of $60B in spending cuts, which was approved by the House on Feb 19 but stalled in the Senate because that body was on its Presidents Day Recess. Senate Majority Leader Harry Reid (D-Nev.) will now attempt to get a bill across the floor and into conference in two weeks.

This is about just stop-gap spending for fiscal 2011. So far, however, nothing serious has been proposed for whittling the deficit down from its massive $1.3T to break-even. President Obama’s $3.7T budget for 2012 contains spending cuts and increases along with tax cuts and increases intended to trim $1.1T over a decade from projected deficits. Another decade without reaching break-even! Any suggestion for meaningful cost cutting is immediately dismissed as politically infeasible, so debt continues mounting for America. Just last month, the national debt increased by another $64B to $14.195T. One month earlier, it was $14.131T. In an attempt to delay hitting the national debt statutory limit this spring, the Treasury drained $158B from its cash reserves last month to support government operations, dropping its balance from $349B to $191B.

Everybody agrees that government spending and borrowing is not sustainable, but nobody can agree on a way to fix it. The biggest expenses for the government are Health and Human Services (Medicare and Medicaid), Social Security, and Defense. Neither party will tackle them.

We’ve seen this dance repeatedly over the past two decades and the result is always more spending and a growing national debt that left sensibility in the dust several administrations ago. The discretionary programs on the chopping block comprise just one third of total spending. Take away defense, as Washington always does, and what’s left adds up to just 15 percent of the budget — meaningless. Parties are discussing such line items as the $8B Obama wants for high-speed rail, against which Republicans are taking a hard stand. Who cares?

Changing administrations means nothing on this front. The top five items in the Bush and Obama budgets command the same share of spending.

Because nothing changes, it will probably take a catastrophe in the debt market to force a sudden, unattractive solution. Federal Reserve Chairman Ben Bernanke pointed that out in recent testimony before Congress. Last month, he said:

“One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”

We constantly hear that tough choices need to be made. What tough choices would you make? How would you solve the financial crisis in Washington? Click the comment link below to join the discussion!

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47 Comments

  1. Posted March 5, 2011 at 4:00 pm | Permalink

    As I read these comments, I get tired of people who want a free lunch. If you want a great nation, you have to pay for it. It does not come free. If you want to maintain the ideals of our democracy and our principle of not leaving anyone on the battlefield, you have to pay for it. Stop whining about the crooks. There will always be thieves but you cannot base your national policy on a few thieves. You set-up programs to catch and punish them. If we backed up to the 1950′s, 60′s and 70′s, we had a graduated income tax rate based on the amount of benefit an individual received from this society and this great government plus the amount of benefit the person gave back. Corporations paid 70% to 75% of the government’s tax burden. If an individual or company wanted to get out of the 90% and upper tax brackets, they had to reinvest in America. That is the way the government of the people structured the tax code. Republicans and Democrats agreed on those points.

    Currently, our government kept us out of another Great Depression. It put major corporations into shape that deserved to collapse and close. Government intervention made them competitive in record time. the govenrment invested in the financial sector to keep it from collapsing and the American people are getting their money back with a nice profit.

    The budget problem is both a reduce spending and increase revenue problem. If you want a third rate nation, move to one and avoid taxes. I prefer the benefits that come from a fair tax system. The government is about to destroy the middle class if it does not return to the graduated tax system that we had in this country. This system was in part responsible for making this country great. Go back to a real graduated income tax. If you do not invest in America, you pay that highest tax — 90% on your last millions, 80% of the next tier, etc. I consulted on three industrial start-ups in the late 60′s and 70′s because the companies either invested the money in new companies or systems or shelled the cash out to the government in the form of taxes. The start-upos were funded with 10% monies — that is, the companies received full credit for the investments and got themselves out of the 90% tax bracket. With that type of indirect stimulus, the U.S. would not need a government stimulus and we could stop worrying about the budget and unemployment. A surtax on the wealthy and close the corporate tax loopholes for just ten years would put the U.S. in the black with no deficit. Let’s stop looking for a free lunch. The U.S. needs a new set of tax laws that takes the burden off the middle class and puts it on those who have benefitted the most from our great republic. If we keep cutting taxes, not only will our government suffer but so will all of America. Starving our government eventually starves the people and we will become a third rate nation of has beens. Try to eliminate waste, but do not try to eliminate government. That is an inherently self-defeating move.

    Hobbes has more truths about the nature of people than Locke. People, corporations need regulation and constant supervision or they devolve to their lowest level. Deregulate the food supply chain or the control on chemicals, and we will have massive deaths and crippling illness. We need a strong govenrment to protect us from ourselves.

  2. Nick
    Posted March 28, 2011 at 2:09 am | Permalink

    Hello, I would like to say that we as americans have been lied to and blinded by our own media and politicians. In the bill clinton years we had a balanced budget, due to the fact that he rolled back high income tax rates to pre-reagan rates. And when i say “rolled back”, i mean increased. The changes imposed by the reagan administration were some of the most ill advised and costly to our nation and it sickens me when i hear people talk about him like he was a great president. First of all, (as previously mentioned) he lowered taxes on the rich. Second, he deregulated the financial system which led to many of the problems we are seeing today. Third, He and his wife nancy decided it was a good idea to have a “war” on drugs… …and as we know, the US is good at spending alot of $ on wars. While i agree that hard drugs have no place in our society, i feel that the criminalization of pot was on of the biggest wastes of our money and efforts-thank you nancy reagan. Now, when george w bush came into office, he immediately changed the tax rates back to reagan rates-and we began to have a deficit again. Gee, do you think he cared more about america as a whole or his rich friends?
    As for SS, it is funded and paid for by the people who recieve it, how can that be an “entitlement”? The govt borrows money from it without accountability, why doesnt anyone talk about this?
    I am not sure how to fix this situation, but i have a few ideas that wouldnt make it worse. First, campaign finance reform. Take the $ out of the equation, and lets get these “representatives” doing some actual representing, not chasing dollars. Second, It must be illegal for any elected official to become a lobbyist after serving our nation. Third, term limits and benefit/emtitlement reform for congress and the house. Set their terms to a max of 4-6 years and eliminate the lifetime free health care and “golden basket” items that they recieve. In summary, we need to make it a a public service position like it is supposed to be. Currently, our system rewards fat cats and the influence of $. The only problem is-we would have to get these same elected officials to make these changes on themselves…

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