Of Budget Deficits, Tax Cuts, and Small-Mindedness

Getting educated on the national debt – no room for politics.

Like most Americans, I am worried about our country. One of my worries, given my penchant for frugality, is the idea of proposing a federal budget with a deficit of nearly $1.5 trillion one year and $1.3 trillion the next. Such numbers truly scare the be-jesus out of me.

That comes even as I acknowledge another penchant, of listening to Princeton economist and New York Times blogger Paul Krugman. To hear Krugman tell it, government deficits are precisely the right thing to do at this moment.

He goes on to insist that the Republican fear-mongering over the current steps taken by the Obama administration is akin to the same group-think that led to the War in Iraq.

According to Krugman:

….the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?

The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.

An American Issue

Yet, while it is easy to point fingers right now, to cast Republicans as naysayers and the Democrats as liberal spenders, the truth is the problem transcends party lines. And finally, a growing number of folks are pointing out some simple facts, that we could get the budget back on track with some very basic steps if the two political parties were to seek some middle ground and simply work towards solutions

One of the best tutorials was laid out recently by analyst Fareed Zakaria over at CNN. First, Zakaria notes that the issue really does not belong at the feet of Obama. Like Krugman, he believes that what has been done in recent months has been entirely necessary including the rescue of the financial system and the stimulus package to jump-start the American economy.

Her calls these short term decisions “understandable choices” that America has to make but “we have probably five years to try to bring our budget into some kind of manageable situation.”

And, instead of casting President Obama as an out-of-control free-spending liberal, Zakaria goes on to lay the issue at the feet of our past president and three fateful decisions made during that time:

The first was to have massive tax cuts, which was a decision made in the wake of the Clinton surpluses.

The second decision was to have a massive new entitlement program — prescription drugs for the elderly — which took the fastest growing part of the American population and joined it to the fastest-rising costs in American health care, which is prescription drugs. It was therefore a marriage made in budgetary hell.

And the third, of course, was to have two wars that were going to be funded without any tax increases, the first time in modern American history that that decision was made. … A partial exception was Vietnam, which produced an economic catastrophe in the 1970s.

Political Posturing

Of course, such statements immediately start one on the basic path that is so popular in Washington today, the blame game. Referencing these give rise to the start of the he-said, she-said phenomena.

Of course, the answer is to take a different approach. We could attempt to get beyond the blame, get our so-called leaders to look at the current situation as it is and begin to search for collective solutions.

But instead, we have a toxic environment, one described by Zakaria thus:

if one side proposes any solution to these problems, the other side does not ask itself: How can we have a compromise that solves this problem?

Instead they think: How can we demagogue this issue to fundraise, to win votes, to scare people, to polarize the political climate and gain advantage from it? It’s almost that the entire strategy now is how can we take any proposal that anyone makes and turn it into a fundraising opportunity for our extreme wing.

And if you do that, you’re never going to actually solve the problems of the country because every proposal can be demagogued.

But amidst these harsh, but entirely accurate criticisms, Zakaria goes on to offer some concrete solutions. They include: the importance of containing health care costs especially and concerns that the current health care proposal “is mostly about expansion and adding to the costs;” tackling sacred cows in the federal budget such as the $250 billion a year hole in the federal budget due to employer tax deductions for health care plans; and the deduction of mortgage interest.

As Zakaria notes, “the real big money is in all these middle class entitlements that are regarded as sacred cows.”

But the third part, the anti-Republican measure, is about taxes, that we cannot balance our budget solely with tax cuts. As a suggestion, he offers a modest value added tax that would raise about $150-$250 billion a year while discouraging excessive consumption and encouraging savings.

Add to that some modest trimming of social security benefits and we could begin again to have a fiscally solvent government.

The Real Issue

I began by announcing my concern for our future and these massive budget deficits. But it is interesting to see what Zakaria sees as the real issue.

Around the world there is great unease about these negative numbers notes Zakaria, but:

the real unease is about the sense that Washington is no longer working, that you cannot count on the United States to be able to make hard decisions, to sort its own internal affairs out.

Zakaria goes on to point out:

One European CEO said to me, what worries us more than anything else is that problems you’re facing now are the same problems you were facing 10 or 15 years ago.

They don’t seem to go away. In other words, we keep kicking the can down the road.

And so in my fear, I say simply, forget these ideologue tea baggers that are drawing attention. It seems to me they are more of the same element.

What we need are centrists and individuals with a desire to move our country forward, folks who will willingly distance themselves from the left and right wings fringes. Folks who run for political office to serve rather than be served, who use their elected authority to solve problems instead of seeing it as a pathway to power.

Given the current blight that hovers over our two party system, it seems highly unlikely that we will readily see such candidates emerge from within the system.

Krugman and Zakaria are right – it is not the current deficit we should be fearful of – instead the fear is of a system that continually elects small-minded people to perform roles that demand so much more.

And as for real blame, we actually need to look beyond these small minded politicians. We, the electorate, continually allow our elected officials to demagogue important issues at our expense.