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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  1. Lon
    Posted March 3, 2011 at 7:46 am | Permalink

    Why don’t we just cut back on the politicians themselves. Do we really need as many as we have? Could they cut back on their spending. Maybe some pay cuts. They are all independently wealthy anyway. How about they work for free for the privilage of being our representitives. If something is not done, there will be another rebellion like a few hundred years ago. When people get hungry enough, they will fight.

    • Posted March 5, 2011 at 10:11 am | Permalink

      The problem is that the only people who can decide to cut back on politicians (from within the rules of the system) are politicians themselves. Somehow, they just never seem eager to pursue that angle, nor lower pay for politicians, nor convert to a sparse retirement program for politicians, nor produce a stripped-down health care plan for politicians. A mystery!

  2. Michael Lowery
    Posted March 3, 2011 at 9:12 am | Permalink

    The founding fathers never really wanted us to have a national banking system. The Federal Reserve in my opinion, and based on what I have read historically is the real problem. It is not even an agency of the federal government. It is not accountable to anyone and that is how the rich bankers planned it to be. You probably have heard of the book – The Creature from Jekyll Island by G. Edward Griffin. He spent an enormous amount of time researching how the Federal Reserve got started and explaining the whole purpose of the Federal Reserve which was to make us Americans poorer while the bankers get richer. If you do a search on Google you will find audio files where the author goes into detail about ‘the Creature’. It is very interesting, revealing, and thought provoking. When you finally get an understanding about ‘The Creature’ then you will probably be angry. Some would probably call G. Edward Griffin a conspiracy theorist, but he is not. His book is full of references where he found the information that is out there, but most Americans just don’t know about it. I think you will find this interesting. You can find the full free download with the author explaining what the book is about on the Web.

    Here is a sample if you are agreeable to post it.

    Here is a little information on G. Edward Griffin.

  3. Michael Lowery
    Posted March 3, 2011 at 9:21 am | Permalink

    I should correctly state that some of the Founding Fathers were directly opposed to a national banking system. I know that Andrew Jackson was really against it when he was president because I believe he knew what it would do to future Americans in giving more monetary power to bankers.

    • Rick
      Posted March 3, 2011 at 2:41 pm | Permalink

      Oh, great. Let’s all turn to the financial acumen of men who wore powdered wigs (to keep the fleas and stench down), employed exceptionally cheap labor (aka, slaves) and invested in Tulip bulbs (Franklin, Isaac Newton).

      “I’m comin’ Aunt Bee!”

      • Daniel
        Posted March 3, 2011 at 10:18 pm | Permalink

        Rick, you’re awfully bitter this morning! Go back to bed! ;)

  4. Irving Klein
    Posted March 3, 2011 at 11:02 am | Permalink

    S0me of the steps required are: 1) Increase the retirement age. When social security first started life expectancy was about 45 . Today it is about 85. People are living longer and healthier lives. If the retirement age. was increased by five years it would certainly help the situation.
    2) Set a target of 10% reduction for the defense budget, and let the military decide how to attain it.
    3)require all derivatives to be traded on a national exchange.We
    cannot allow trillions of dollars be gambled in a completely uncontrolled manner. If just a few of these bets ” go sour” it can wreck not only the US financial system but the world financial system. 4) Have a national sales tax as the Canadians and the Europeans have. 5)The measure of inflation used on the Consumer Price Index must be changed. Leaving out Energy and Food out of this index because it would make the index too volatile is a joke. this is just a means for all federal governments to understate inflation.
    6) require that 10% of American cars use natural gas by 2020 and 30% by 2030. The United States has a huge amount of natural gas reserves . Implementing this measure would certainly ease the dependency on foreign oil. It would also help the United States trade balance.

  5. Rick
    Posted March 3, 2011 at 1:19 pm | Permalink

    1. I doubt many/most of those commenting above have children. The world changes when you have a kid: the hubris that comes with youth and excess testosterone tends to dissapate. There are no easy solutions and it’s heckuva lot easier to see the meaning behind “there but for the grace of God go I”. Cutting Social Security? Riiiiight. Never. Happen. Nor should it. We have just come (part way) through a severe economic dislocation where whole divisions/departments/businesses were cut, and yet there are those drinking the “Ayn Rand” koolaid out there thinking that somehow it was because of a lack of merit. What’s that line from The Who? “Hope I die before I get old…”
    2. What brand of idiotic logic says that the answer to the FEDERAL deficit is to create countless STATE deficits? Doh! We’ll just fix the Federal problem by having the States take the responsibility. Or, “local” government. Give. Me. A. Break. I am 100% confident that out of 100 people who might be commenting on this (or any blog) you might find 2 who know the names of more than 1 “alderman” or “city council person” or whatever the local rep is titled. Suggestions to “localize” the responsibility are “nitwittian”. Economics 101 talks about savings and efficiencies from economies of scale, of centralization of requisite skills and the rationalization of production and delivery and expertise etc etc. but this latest feint by the moneyed Right to convince the Nitwittians to “recall how good it was back when Andy was Sherriff and ThelmaLou was the “schoolmarm” seems to be successful.
    3. David Koch and the truly well-heeled understand that our consumption society has already crossed the line separating those who understand self-governance requires self-control=deferred pleasure, from those that want their MTV/IPODS/IPADS/FACEBOOK/BANDWIDTH/ALL_STIMULATION_ALL_THE_TIME now. Getting the rabble excited about the need to “reduce the deficit” (like any one of us can put any of these numbers into perspective, or honestly understands why the deficit spending 6 months ago or 6 years ago was acceptable but the deficit spending now “has to stop! It’s killing us, man!”) is the perfect cover for pushing through less regulation on the banksters (who have already attached their siphons to your wallet, to a degree that makes the pittance given to social programs look like the chump change it is) and for cutting funding for … of all things… education. The best way to keep the rabble “the rabble”? Limit their education.

    Having gotten that off my chest, I’ll troll upwards and provide specific acerbic remarks to the truly needy.


    • Daniel
      Posted March 3, 2011 at 10:21 pm | Permalink

      Rick, please share your solution to the problem. I have yet to see it. You merely disagree with what others have posted without stating what your solution is…

    • Posted March 5, 2011 at 10:13 am | Permalink

      A reasonable request, Rick. What are your solutions?

  6. MBC
    Posted March 4, 2011 at 5:04 am | Permalink

    How about we stop spending on religious interest in Egypt and in the Middle East! How about we “hang” our govt. officials who continually fund areas that are not in the best interest of our county, as they try to win relationships with our enemies abroad! Come on people, our govt. has wasted multi millions on things we don’t even know about nor do we have a clue on the reason why they continue to spend in these areas! Let’s get rid of the officials who do not think about how they are spending our tax monies as they continue to spend wildly on things that don’t matter to the common American citizen! I say, we take care of America first! We close our boarders until we can clean up our mess and determine what our founding Fathers would have thought about how we are as a country today. My guess, they’d hang their heads in shame and embarrassment!

  7. Jeff
    Posted March 4, 2011 at 2:22 pm | Permalink

    1) Cut defense. I support defense, understand it is an absolutely legitimate function of the government (job #1), I work in the defense industry, but the amount we spend on defense is obscene. First, cut say 90% of the overseas bases. We can project power, troops, and equipment nearly anywhere with ease these days. Especially if we got into a shooting war and we had to enlist FedEx, UPS, the airlines, etc. Get out of Japan, Europe, Korea, etc. That would save a big chunk of change. Kill JSF right now. I’m a fan of the F-35 and it’s a cool aircraft. We don’t need it. Get the technology benefits from the R&D (pretty much done) and live with F-22s and F-18s for another 10 years.

    2) Means test social security. I know there will be much whining. Agree Social security is a waste, but many folks need it. If your income is e.g. >$150k start to reduce Social security until it is zeroed at say $200k of income. Not very nice but we gotta do it.

    3) Means test Medicare. A tougher cookie. I’d say something like the first $20k (annually) of healthcare comes out of your pocket if you make more than X dollars/year. Not sure what X is but maybe $150k again.

    4) Cut all farm subsidies, foreign aid, etc.

    5) Here’s an unpopular one: reduce veterans expenses. Vets deserve much respect and some benefits, but the gravy train is a bit too much.

    6) No medicaid or anything else for illegals – I think we have to stop the (in my opinion) wrong interpretation of the 14th amendment (I think 14th) that an illegal born on U.S. soil is a citizen. Don’t think that was the intent and we should stop it.

    7) Tax the rich: I’m no fan of taxes and I make a nice living. Unfortunately we are so far in the frickin hole I don’t know what else to do but increase taxes. I’d say a top tax rate of 50% for all income over $1M (maybe $500k?). Ouch! Don’t like it but think we have to do something like that until the fiscal house is in order.

    Bottom line is make some sacrifices, have a lower standard of living.


    • Posted March 5, 2011 at 10:20 am | Permalink

      Thanks for stepping forward as one who works in the defense industry and admitting that it needs to be cut way back. I agree about overseas bases, and avoiding unnecessary foreign entanglements, a la Iraq and Afghanistan, would go a long way toward freeing up resources to focus on the real threat on the horizon: major war with sovereign militaries over oil and other commodities.

      As China builds a blue water navy and shores up oil reserves around the planet, the US is wasting its treasure and assets on pointless exercises in the Middle East. Pulling back on those and other unnecessary overseas military activity would save a lot of money and probably leave America on better footing for a war that matters.

      Among the 10 percent of overseas bases to keep, the ones in Japan are probably a good idea. Leaving a top ally in a key region of the world defenseless against the likes of North Korea and a rising China that’s constantly infringing on Japanese territory would be unwise, in my view.

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