Ahead Lies the Reckoning

Want to get serious about the national debt? Here's your chance.

by Jeffrey C. Billman

Alyssa Grenning

[ big problems ]

Last week, the U.S. Senate, bathing itself in the language of financial austerity, rejected a bill that would have extended unemployment benefits because it would have tacked on $55 billion to the deficit — though chronic unemployment is at its highest rate since the Great Depression.

That's a fact. The Senate ignored it.

With the specter of trillion-dollar deficits lingering overhead, the pressing reality of the economic crunch takes a backseat — no matter the advice of economists, who argue that government spending is essential to economic recovery, itself a prerequisite for any long-term deficit reduction. But the debt is now a political football, and Republicans — and some Democrats — are running with it.

We've seen this before: in the 1930s, when deficit-spending fears prompted Congress to turn off the spigot. The U.S. plunged back into the Great Depression.

But never mind that. There's an election coming. So we'll hear lots of talk about earmarks and runaway spending — without irony, this same pabulum will come from those pitching more tax cuts as a deficit panacea.

All of this is cheap rhetoric, aimed at a public that sees words like "gross domestic product" and "$13 trillion" as abstracts, and that hates the deficit but doesn't want to see either taxes go up or government services — at least, the government services they use — get whacked.

"Most people don't realize looking ahead 10, 20 years, just what a problem the deficit is going to be," says Kevin M. Esterling, an associate professor of political science at the University of California-Riverside. "People think we can cut taxes and continue spending without any consequences."

Ahead lies the reckoning: tough choices for a people — and a Congress — that dodges them whenever possible.

Earlier this year, President Barack Obama tasked a bipartisan commission with (more or less) balancing the budget in the next five years. All options are supposedly on the table, though Republicans have already signaled that they'll discard the commission's recommendations if they even hint at tax increases. Democrats will likely react to any proposed entitlement cuts with the same maturity.

"The state of civic discourse in our country is fairly bad," says Esterling.

Things are the way they are because more often than not, the public is ill-informed about complex issues. This allows politicians to craft policies that are designed to win votes, but are not sustainable.

It's a vicious cycle that will only be broken by a public that demands its leaders look these Hobson's choices dead in the eyes.

That's where you come in. On Saturday, a nonprofit, nonpartisan organization called AmericaSpeaks will host a nationwide town hall anchored at the Philadelphia Grand Ballroom (3801 Market St.), designed to give you the chance to dig in and let your voice be heard. (One of the two chairmen of Obama's National Commission on Fiscal Responsibility and Reform, Erskine Bowles, will be there, as will Philadelphia's two congressmen, Robert Brady and Chaka Fattah.)

"The idea," says Esterling, who will study how the meetings influence participants' views for AmericaSpeaks, "is to get ordinary citizens to learn about a topic and then sit down together and talk it through in a deliberative way. Once they do that, maybe policymakers will pay more attention to their beliefs."

If you'd like to go, it's easy: Register, for free, at usabudgetdiscussion.com, then show up at the ballroom at 11:30 a.m. If you want a leg up, here's a primer on some of the issues you'll be discussing.

DEFENSE

In his 1990 book Declarations of Independence, the late, famed activist/historian Howard Zinn lamented the federal government's spending priorities: "In debates on the military budget there are heated arguments about whether to spend $300 billion or $290 billion. A proposal to spend $100 billion ... is missing. To propose zero billion makes you a candidate for a mental institution."

HALF OFF DEPOT

Why live life at full price?

Since Zinn's writing, defense spending has more than doubled, to $693 billion in 2010 — nearly 20 cents of every dollar the federal government spends. Removing the costs of the wars in Iraq and Afghanistan, the Department of Defense (DOD) still received $531 billion this year. Since 2001, defense spending has increased by 119 percent; it accounts for 65 percent of the increase in total government spending over the last decade. By contrast, the Department of Education has, in that same period, seen its budget increase by just 17 percent, from $40 billion to $46.8 billion.

The Pentagon costs taxpayers roughly the same per year as Social Security and nearly as much as Medicare and Medicaid combined. We spend on defense two-and-a-half times the amount spent by all our potential enemies combined. In 1986, at the height of the Cold War, we spent 60 percent of our combined adversaries' defense allocations. And yet, the Pentagon budget is sacrosanct.

To compound matters, there's no way to find out how much of the Pentagon's budget is wasted. "Today, DOD is one of only a few agencies that cannot pass, nor even stand for, the test of an independent auditor," reports the Sustainable Defense Task Force in its report "Debt, Deficits and Defense: A Way Forward," released earlier this month. "Among this handful of errant agencies, DOD is both the worst offender and the most consistent. The DOD inspector general has found that the weaknesses in DOD's financial system 'affect the safeguarding of assets, proper use of funds, and impair the prevention of fraud, waste and abuse.'"

Current law calls for the Pentagon to be audit-ready by 2017; until then, we won't know with any precision how much it spends on, say, counterterrorism or countering the proliferation of nuclear weapons. What we do know, however, is that former secretary Donald Rumsfeld once estimated that fraud and waste accounted for at least 5 percent of the DOD's budget. This year, 5 percent would be $35 billion, more than the State Department's entire budget.

The task force, comprised of members from a broad ideological spectrum — the libertarian Cato Institute and liberal Center for American Progress are both represented — and convened by U.S. Rep. Barney Frank (D-Mass.), recommended nearly $1 trillion in cuts to the DOD budget in the next decade, including eliminating a $385 billion fighter plane program, cutting back the U.S.'s nuclear arsenal and reducing the number of troops stationed in Europe and Asia.

Whether this report goes anywhere remains to be seen.

ENTITLEMENTS

"Three programs — Social Security, Medicare and Medicaid — constitute considerably more than 40 percent of spending in a normal year, and all are growing faster than the economy and tax revenues. At the same time, Congress has kept the overall tax burden remarkably constant, between 18 and 19 percent of GDP [gross domestic product] for most of the past 50 years. The combination of three large, rapidly growing programs and a constant tax burden inevitably implies a growing deficit."

So Urban Institute fellow Rudolph G. Penner told the first meeting of the National Commission on Fiscal Responsibility and Reform on April 27. He was, in a sense, stating the obvious. But it needs saying.

Today, seniors make up about 13 percent of the population. In 25 years, they'll make up more than 20 percent. The Baby Boomers and ensuing generations will live longer than their predecessors and raid the coffers of Social Security and Medicare.

Social Security — which will take in less money than it pays out this year and hit crisis mode in about 2037, when its reserves run out — is the easier fix, if we can muster the political will: Raise the retirement age, reduce benefits for the well-off and eliminate the cap on payroll taxes, so that those who make more than $106,800 pay Social Security taxes on all of their incomes. (The latter alone is sufficient to cover Social Security's projected shortfalls, according to the left-leaning Economic Policy Institute.)

Medicare and Medicaid are more vexing. Before the recent health-care legislation passed, federal health-care spending was projected to double over the next two decades. "At this point, the effects of the recent legislation on federal health-care spending over the long term are uncertain," Federal Reserve Chairman Ben Bernanke told the deficit commission in April, "in part because they depend importantly on implementation."

While Medicare operates with incredible efficiency, it is saddled with caring for the oldest and sickest. As the population ages and as medical costs increase, Medicare and Medicaid will continue to hamper efforts at fiscal sustainability. "Ultimately," warned the Committee for a Responsible Federal Budget in 2009, "the Medicare and Medicaid programs face enormous growth that dwarfs every other component of the budget."

Slowing overall health costs will probably not be enough to keep Medicare and Medicaid solvent into the future.

TAXES

The government needs more money. There's no way around it.

Since World War II, the federal deficit has averaged about 1.7 percent of the country's annual GDP, today about $14.4 trillion. (The current deficit is $1.4 trillion; the entire federal budget this year is $4.9 trillion.) However, if nothing changes, that percentage is projected to increase to 9 percent by 2025 and 22 percent by 2050. Meanwhile, the publicly held debt, which is 60 percent of GDP this year, is slated to reach 114 percent of GDP by 2025 and 316 percent of GDP by 2050.

That would be, in a word, catastrophic. That said, there's no need to panic just yet. Having some debt — not unlike having a mortgage — is fine. Provided, that is, that we can make the payments. In fiscal year 2009, the U.S. made $383 billion in interest payments on its debt. Put in perspective, that's the equivalent of about 70 percent of all of the federal government's non-defense discretionary funding (schools, highways, space travel, homeland security and so on).

It's a lot of money. And as we run larger deficits, and once interest rates go up, it will be a lot more money. In the long run, it's not sustainable. In the short-term, however, it doesn't mean we need to gut federal spending; indeed, federal spending was (and is) integral to breaking out of the Great Recession. The recession — lost jobs, lower tax revenues, safety-net payments — tacked on about $400 billion a year to the deficit in 2009 and 2010, according to an analysis by the Center on Budget and Policy Priorities (CBPR). Thus, getting the economy on solid footing — the stimulus helped, according to the Congressional Budget Office — was the first priority. Over the next decade, the stimulus and other economic recovery measures will account for about $1.1 trillion in federal deficits, almost all of which will be felt in 2009 through 2011, according to CBPR.

The impact of those policies pales in comparison to the effect of the wars in Iraq and Afghanistan and the Bush-era tax cuts. (The 2001 tax cuts cost $1.35 trillion over 10 years; that dwarfs Obama's $787 billion stimulus.) Together, CBPR estimates that they will add some $7 trillion to federal deficits in the coming decade, even as the wars wind down.

Rescinding the tax cuts for those making $250,000 a year or more, for which President Obama's budget calls, would net about $850 billion over the next decade.

Don't feel sorry for the rich. Even if they return to paying the Clinton-era top marginal tax rate, 39.6 percent, their burden will still be historically low. During World War II, for instance, the top marginal rate was as high as 94 percent; it fell to 70 percent under Presidents Nixon and Carter; President Ronald Reagan slashed it to 50 percent; then, in 1988, to 28 percent, where it stayed until President George H.W. Bush broke his "read my lips" promise. (The current top rate is 35 percent.)

Since the Reagan tax cuts, the gap between rich and poor has widened markedly. In 1980, the richest 1 percent took home, on average, about 200 times the average income of those in the bottom 90 percent, according to businessinsider.com. But in 2006, shortly before the Great Recession, the rich earned 976 times more than the bottom 90 percent. The only other time in the last century that wealth was so disparate? The year 1928, right before the Great Depression.

To put a serious dent in the debt, perhaps we should consider not just eliminating the Bush tax cuts on those making $250,000 or more, but also establishing higher tax rates for those earning millions.

But even that won't solve the problem. "It's just not possible to get the revenue you need only from [the rich]," Joel Slemrod, director of the Office of Tax Policy Research at the University of Michigan, told Business Week in February. Indeed, even if Congress lets the Bush tax cuts on the highest earners expire, the government is still projected to run high deficits through at least 2015. Despite his campaign promise, President Obama has refused to rule out raising taxes on those in lower tax brackets, if his debt commission so recommends.

Spending cuts may be part of the equation, but they're certainly not the answer. In 2010, Congress spent $1.25 trillion — about a quarter of all federal outlays — on what's termed "discretionary funding." Of that, $693 billion was set aside for defense. That leaves $554 billion for everything else: education, science research, highways, agriculture, foreign aid, homeland security, veteran's affairs, NASA, national parks, etc.

If you eliminated all non-defense discretionary spending — every single dollar — and scrapped the stimulus, the U.S. would still have run a deficit this year.

Targeting foreign aid ($23.4 billion) or earmarks (about $11 billion this year) is really just trimming at the edges. Obama's three-year freeze on non-defense discretionary funding, set to begin next year, will only save about $250 billion, or just over $80 billion per year. Not chump change, but not a game-changer, either.

DELIBERATIVE DEMOCRACY

Fifteen years ago, former Clinton White House staffer Carolyn J. Lukensmeyer founded AmericaSpeaks with a simple mission: "to provide citizens with a greater voice in the policymaking process," says Vice President of Citizen Engagement Joe Goldman. If the public isn't well informed, it can't possibly be engaged. And if it's not engaged, we're at the mercy of policymakers — who, Goldman adds, don't always understand this stuff, either.

While the advice of number-crunchers shouldn't be ignored, if the rest of us divorce ourselves from the process, we open the door to those who prey on our ignorance.

"Our goal has been twofold," says Goldman. "One, bring together a cross section of Americans to learn about the long-term fiscal challenges facing the country and weigh the different options and see where there's a sense of convergence, [then] produce a report to the relevant committees in Congress and the [Fiscal Responsibility Commission]. The second is demonstrating that there's a different way to govern. There's a general sense our democracy is not working as it should right now. We want to demonstrate that regular people can understand these issues and can make judgments that are useful to policymakers."

To that end, Saturday's town halls — here, on the Internet and in 18 other cities across the country — will offer nonpartisan literature on the deficit and experts on hand to answer questions. The participants will gather in small groups to tackle separate facets of fiscal policy in detail, then reconvene to discuss and debate.

"In some ways, this is a values-based discussion," says Goldman. "We can look at different options: Should we raise revenue through income taxes versus reducing spending in this way? We're really talking about what my values are. We're giving people concrete and real options. What do people care most about?"

At the end of the day, that's the only question that matters.

(jeffrey.billman@citypaper.net)