Debt and Deficits: Nation Missing an Opportunity
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The nation faces a true crisis. Sometime next month, unless Congress authorizes an increase in the debt ceiling, the United States will no longer be able to meet its financial obligations.
However, if you know where to look and if you are willing to take the necessary risks, every crisis provides the opportunity for real change. The rebirth of the U.S. automobile industry, following its need for a government bail-out, would seem to be such an example.
Democratic governments, in fact, seem to require a crisis before making hard choices. This does not imply, however, that hard choices will be always be made in crisis situations.
Trying to stay abreast of the ongoing deficit reduction negotiations between the Democrats, Republicans, and President Obama is no easy matter. Interestingly, there are three, not two, groups involved. President Obama's solution, in many ways, looks more like a Republican than a Democratic proposal.
All three camps agree in the need to bring projected federal expenditures into balance with projected revenues. The devil, and the debate, is in the details.
By way of background, the major contributors to the ongoing debt problem - remember, the U.S. was running a budget surplus by the end of the Clinton administration - in order are (a) the decline in tax receipts by virtue of the Bush tax cuts, (b) the costs of the wars in Iraq and Afghanistan, and (c) increasing costs of Medicare and Medicaid.
The costs associated with offsetting the recession are substantial but transitory. The real dilemma lies in balancing the government's books if and when the economy returns to full employment.
Early last year, when Congress failed to gain Republican approval for a congressionally run bipartisan debt reduction commission, President Obama issued an executive order to form his own bipartisan commission. Its report, released last December, called for major changes to both entitlements and the tax code - stemming the growth in Medicare, Medicaid, and Social Security outlays while reducing tax benefits to certain groups.
The politics, surprisingly, are similarly straightforward. The Republicans wish to balance the books by substantially reducing federal disbursements to the unemployed, poor, sick, and retired. Republicans claim they were elected on the promise to not raise taxes, and argue that this pledge extends to maintaining existing tax advantages, for example to oil companies.
President Obama, as in the health care debate, chose to let the two parties fight it out before taking a position. He was specifically reluctant to enter the fray unless he felt the Republicans were prepared to enter into serious negotiations.
With results of political negotiations mixed at best, and with time running out, Obama, in poker parlance, went "all in." He took the opportunity afforded by a looming fiscal crisis to advance a proposal for a massive $4 trillion cut in the budget deficit over the next decade, with two thirds of the cut resulting from reduced expenditures - Medicaid, Medicare, and Social Security - and one-third from higher revenues, largely by ending tax breaks.
In offering the Republicans this proposal, the president went against his own party. Validating the recommendations of the bipartisan debt reduction commission, he was willing to substantially rein in government entitlements. At the same time he was standing firm on his personal pledge that he would allow that any solution be borne solely by the middle and lower classes. Again, reflecting the recommendations of the debt reduction commission, he called for increased tax revenues, primarily from the wealthy.
While Speak Boehner worked with the president to strike a deal, at the end of the day the Republican leadership was unwilling to similarly challenge its rank-and-file to seize the opportunity offered by the current financial crisis.
Rather than having a responsible and meaningful compromise that restores fiscal responsibility, Congress is likely to follow longstanding political traditions and somehow muddle through, at least to the next fiscal crisis.
Each side will spin the president's motivations and the like. Republicans, for example, will continue to characterize the Democrats as the party of tax-and-spend. The simple fact remains, however, that President Obama - taking the opportunity afforded by the financial crisis - was willing to make substantial concessions on government spending in return for less substantial Republican concessions on taxes.
I'm not saying he would have received the support of House and Senate Democrats in this regard, but at least he was willing to risk failure in order achieve meaningful progress.
Sadly, the same cannot be said for the Republican leadership. The opportunities afforded by our financial crisis appeared to have gone wanting. The American people will suffer as a result.
Paul Ericson is a recently retired Pinecrest High School social studies teacher. He previously served with the U.S. Army and the CIA.
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Comments
Easygoing 1 year, 10 months ago
Well written. I would add that another major contributor to our fiscal problems are the recession and the resulting decreased tax revenues and drain from required social safety net expenditures that it required. But if three major contributors are: "(a) the decline in tax receipts by virtue of the Bush tax cuts, (b) the costs of the wars in Iraq and Afghanistan, and (c) increasing costs of Medicare and Medicaid." then I would suggest we consider: (a) eliminating the Bush tax changes and go back to the tax code before these changes, (b) immediately end our adventures in Iraq and Afghanistan and let those countries figure out how to act responsibly themselves. Substantially reduce the expenditure for our bloated military complex, and (c) take actions to modify Medicare (by for example changing the age that benefits start to the full retirement age as defined for social security) and reducing Medicare payments to states by some small amount to get the program under control. Just some ideas to discuss. Some level of shared sacrifice will be necessary to get us back to the right footing in the country.
TreadLightly 1 year, 10 months ago
PROPAGANDA 101, taught by a professional. (School teacher and CIA.)
The odds that a Pinecrest High School student is reading this are practically zero. But at least we know what they were taught.
Your analysis of the budget crisis is extremely skewed. The “double-digit” elements of the estimated federal budget for 2012 are: Health Care 18% Defense 16% (Most is NOT Afghanistan) Pensions 16% Education 14% Welfare 11% (Interest 5%)
You centered your concern on ONE large budget item and TWO much smaller items.
The two small ones are TEMPORARY problems, as explained below. The ONE LARGE one is the one that Democrats hold sacred! Folding it into ObamaCare will not make it cheaper.
PRESENTLY: 1. As Mauiman pointed out, Obama and the democrats bought into the Bush tax rates when they had TOTAL POWER to raise the taxes. Even the Democrats on the Hill could see that raising income taxes would be disaster in a recession.
FUTURE: The tax levels are near the OPTIMUM to produce MAXIMUM INCOME to the treasury. When the economy recovers, tax receipts will increase vastly.
When taxes go up, large earners pay them for a year while they restructure. They rearrange, and do not risk their life savings and 60 hour weeks for no return, and tax receipts go down. Then another “Kennedy,” “Reagan” or “Bush” tax cut brings them back to work, and tax receipts go up.
Recessions come and go as a normal business cycle. But when government takes the stance of Obama, small and large business owners can not expand. They know that higher costs are in their future, and just try to hold on. Even if the kept EVERY JOB IN PLACE, every time a high school graduation occurs, you need MORE jobs.
PRESENTLY: Any way that you insert this into a pie chart, it will not be a large part of the budget.
FUTURE: As these draw down, the expense wanes. Self-solving budget problem.
PRESENTLY: You should add Social Security to that mix, as the present structure is not sustainable. (Pardon the liberal lingo.) You might say that the future is here NOW, as these costs have grown to be a huge part of the budget. They are projected to continue to grow until they would become THE WHOLE BUDGET!
President Obama’s “savings” proposal involves putting them under ObamaCare. As the old saying goes, “YOU THINK MEDICAL CARE IS EXPENSIVE NOW, WAIT UNTIL IT IS FREE.”
You touched the possible problems…
The Obama administration has pursued a leftward lunge, and the results have been disastrous. Replay of FDR. Same results. No end in sight. No intelligent moves in sight.
pgericson 1 year, 10 months ago
In a classroom setting the discussion would be much different. Students would be asked what they thought of the situation and the implications of alternative discussions would be probed.
jimt 1 year, 10 months ago
mauiman and treadlightly are dead WRONG, as usual.
The causes of our current budget shortfalls are as Mr. Ericson and Easygoing outlined, plus the unfunded spending spree of the Republican House and Senate during Bush's first six years in office.
Solving the Social Security problem is relatively easy. Over a period of time increase the age at which people become eligible and end the wage cap.
Medical costs can be substantially reduced, as has been shown in every country in Western Europe by (horror or horrors) medicare for all, aka single-payer health care.
Future uses of our military in combat should be paid for by a temporary "war tax" a dollar for dollar tax on every American to cover the cost of the campaign. No more borrowing money to pay for our wars. If wars need to be fought, we pay for them out of our own pockets. We might reconsider some kind of draft as well to lower personnel costs, but this time no exemptions for the wealthy.
sgmartin 1 year, 10 months ago
"not one fact just a far left opinion".... Wow. Nothing far left about this piece. Well written, generally balanced and concise. We seem to have different reads on history here. It is just so easy to lay this debacle at the feet of Obama, Dems, "liberals" (read anyone who disagrees with you"). Your remarks seems to reflect an over-reliance on that "fair and balanced" Fox "news" chatter. Got hate?
sgmartin 1 year, 10 months ago
Still looking for your "facts". Try factcheck.org
JRowerdink 1 year, 10 months ago
A well-written article. Mr. Ericson doesn’t make any attempt to hide his political leanings, but then most of us don’t, including me.
However, I must challenge the worn-out assertion that the Bush tax cuts contributed to our budget deficits and the national debt. The Bush tax cuts took place in 2001 and 2003. In 2004 - 2007, the government’s revenue increased 5%, 15%, 12% and 7%, respectively. By 2007, the government’s revenue was $786 billion more than it was in 2003, a total increase of 44%. These are the actual numbers, obtained from the Congressional Budget Office and the government’s Office of Management & Budget. So can anyone explain to me how the Bush tax cuts contributed to the budget deficit?
During the first seven years of the Bush administration, the government’s revenue increased $577 billion but the spending increased $866 billion. President Bush didn’t have a taxing problem, he had a spending problem. Ditto for the current administration.
John Rowerdink
TreadLightly 1 year, 10 months ago
Maybe they should all sit down around the negotiating table and review exactly why every Democrat in the Senate, including Obama, voted AGAINST raising the debt limit. Did sound financial plans such as the Democrats were using suddenly go out of style?.