November 29, 2012

The Federal Debt

By now, anyone who watches the evening news will be familiar with the "fiscal cliff," the dreaded leap into the unknown if Congress and the president fail to reach agreement on a perfect storm of tax and spending issues that all happen to converge after the 1st of the year. We have spent years kicking the can down the road. One more kick of the can sends it over the cliff.

Despite some reports that progress was being made, both sides remain locked in their respective positions and show no signs of giving anything away at this stage in the maneuverings. The president insists that any deal include tax hikes on the top earners. Republicans insist that any increase in tax rates for any group is just out of the question. Instead, they insist that the president solve the problem by cutting spending.

I just want to make one simple point. The federal debt is about money we have already spent. That's what debt is, unpaid bills for things you have already bought. Sure, you can also look ahead and see more of the same if you don't start living within your means, but that future debt doesn't have to happen if you do something about it, and doing something about it means understanding why you got into trouble in the first place. With that in mind, take a look at this chart prepared by the Center on Budget and Policy Priorities.

Another chart, taken from a report issued by the Pew Charitable Trusts,explains the variance between the rosy predictions of  budget surpluses by the Congressional Budget Office in 2001 and the reality of expanding deficits.

Both point to the same culprits: the Bush tax cuts and the wars in Afghanistan and Iraq. Yeah, yeah, I know there are other factors, but if you take away the tax cuts and the wars, the amount of debt drops sharply and the downturn due to the housing bubble becomes a much more manageable crisis. Republicans don't want you thinking about that. They want you worrying about Medicaid and other entitlements. Not one cent more for poorer Americans; millions for contractors to rebuild Kabul and Baghdad. And don't even think about the richest. They are the most endangered group of all, if you listen to the Republicans.

Like many Americans, I fully supported the invasion of Afghanistan and had many reservations about invading Iraq. And, like most Americans, I welcomed the extra income in my family's budget when taxes were cut.  But to first cut taxes and then to embark on two major wars without collecting enough taxes to pay for them, well, what did you think would happen?

President Bush and the Congressional Republicans made the same choice that Lyndon Johnson and the Congressional Democrats did during the Vietnam War. Rather than forgo his Great Society, President Johnson chose to hide the true costs of the war in Vietnam, relying on complaisant Democrats and war hawks in Congress to go along with the charade. Everybody got what they wanted, so who was left to complain? Just as today, the fiscal chickens eventually came home to roost and the bills had to be paid. It was ugly then, and it will be ugly now.

Economist speak of guns and butter, military and domestic spending, war and peace. The idea is you can do one or the other, but not both, at least not unless you are willing to impose a tremendous tax burden on the people, something politicians of any era are reluctant to do. Anyway, politicians are not economists. They want to have their cake and eat it, too. So do we, the people.

Well, we've pigged out, and now it is time to make a New Year's resolution to reform our sinful ways. For what it's worth, I believe that if tax cuts and defense spending were part of the problem, then they damn well ought to be part of the solution.

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