Fiscal Matters and the Need for Realistic Discourse
Our fundamental fiscal problem is an unwillingness to deal realistically with costs and benefits.
In a column that criticizes left and right, Robert J. Samuelson writes about Why we’re in the budgetary soup
Governing is about choosing, and in the budget debate, there are no popular choices. But the reality shaping them all is an aging society in which programs for the elderly are pushing the budget into growing disequilibrium. Until the political gatekeepers acknowledge this — meaning the left recognizes the need for genuine benefit cuts and the right accepts some higher taxes — public understanding and political agreement will remain hostage to partisan fairy tales. It’s time to deal with facts.
Yes, that would be nice. Indeed, these basic facts are not being adequately addressed.
People, for example, will talk about massive cuts to the federal government without acknowledging that such massive cuts will require serious changes to Social Security and Medicare. Now, one may think that this is an excellent idea, but one still has to then deal with the fact that these programs are massively popular with the public. As such, if one wants massive cuts one is going to have to figure out how to change the political dynamic around these issues. Of course, this is rather unlikely.
Likewise, one cannot pretend like nothing needs to be done in terms of financing these programs. Either taxes are going to have to be raised or the programs are going to have to reformed (or, more likely, both). This has its own political difficulties because people don’t want to pay more taxes nor do they want benefits cut.
The bottom line is a threefold set of possibilities: 1) the programs either have to be cut to come in line with revenues, 2) revenues are going to have to be increased to pay for the programs, or 3) a balance of cuts and revenue enhancements. None of these is politically easy.
And so we have a seeming immovable object/irresistible force scenario and the lack of the ability of political leadership to find a way to alter the calculus.
At a minimum: what seems to be missing a real conversation about what the public actually wants and how much it costs.
Such a conversation needs to also include assessing defense and security costs and goals (and the fact that the benefits of defense are diffused across the population). Some also need to live up to the fact that, like the process or not, a lot of people (a large number of which are upper income) benefited directly from TARP and various bailout programs as well as the fact that there are a number of other government programs that benefit the middle class. Indeed, a lot of people need to acknowledge that even if they had philosophical objections to the actions that they may still have benefitted.
In other words: we need a real conversation about costs and benefits. Instead, however, we get one side upset about class warfare and theft of property and the other side hurling accusations about starving grandma. Oddly, such discourse does not result in good public policy outcomes.
And yes: I do know that there are reasonable people out there and that in a given conversation one group may be more reasonable than the other. Still, the public does not have a realistic view of our fiscal situation and they are the ones who ultimately steer the ship.
Add to that the horrible dynamic that no one will chart a 10 or 20 year path for these solutions.
Instead they are caught in a “I don’t trust you, so it must be now” versus “it can’t be now because of the recession” quagmire.
Remember the good old days when the arguments were framed as guns or butter? Now as we have lost our fiscal sanity imagining that we can have guns and butter and lots of other stuff besides, the epithets have become more vile as reality once again intrudes and the proverbial hard choices must be made.
What the people want is problematic in determining actual policy. If wishes were horses beggars would ride, IIRC. My kids want a lot but there is only so much they can actually get. From a related thread, having so many who do not pay federal income taxes means that their list of wants can grow interminably at little to no risk or cost to them. And of course there are always people willing to promise them anything.
There is only one rule of gambling in my opinion, don’t bet anything you can’t afford to lose. I leave it to the reader to make the connection.
Such a conversation would also need to include a real discussion about the rapid increase in the cost of elder/end-of-life care — an increase that has, as Dave S. has pointed out a number times, out paced both inflation and typically interest rates.
“having so many who do not pay federal income taxes means that their list of wants can grow interminably at little to no risk or cost to them.”
Yes, it’s quite problematic to have major corporations and rich people paying little to no federal income taxes.
Mike
@charles austin:
Of course, a major flaw in this line of reasoning is that payroll taxes finance Social Security and Medicare. If your argument is that those who receive benefits do not pay into them, you are mistaken. But since you always note your small business experience, you know this, yes?
That so many people pay no federal income tax is merely an indicator of the success of the war on the middle class that began in the 80’s with Reagan….they pay no taxes because they are f’ing poor.
A reasonable discussion in problematic when the participants don’t understand the basics involved…for instance, that the debt ceiling is about debt already incurred. Yeah… That’s you Chuck.
There’s a huge mistake at the center of this article, and that’s the idea that the American people don’t want higher taxes or benefit cuts. Yes, it’s true that this has been the case over the past few years. But poll after poll now says the same thing — 80% of the American people chooses higher taxes over benefit cuts. Even close to fifty percent of Republicans see the need for raising taxes.
But all the Republicans in Congress listen only to the tiny 20% who demand that taxes only go down.
You could tax the middle class and up 100% and it won’t put a dent into the spending craze our government is on, much less pay off the debt. It’s a spending issue, and smaller government needs to happen.
@Rob: The government consumes 14% of GDP. Increase that to 25% and you eliminate the deficit. So yes, it is hypothetically possible to enact tight fiscal policy through tax increases alone.
Repeating 20 year old talking points from The Way Things Ought to Be is not helpful, Rob. Fixing problems requires facing things as they are, not as we would like them to be.
@Rob: This is the standard right-wing nonsense — since an absurd tax increase wouldn’t completely solve all our problems, then there’s no point in addressing any part of the problem with a sensible tax increase.
Really, why don’t you try to do a little thinking instead of mindlessly parrotting whatever Rush tells you?
Dr. Taylor, yes, I know this, and it is even worse than it seems since Social Security “premiums” are taken and used as general revenue by buying Treasury Notes as investments. I guess I’m struggling to see the major flaw in my thinking, especially once we start means testing Social Security. I would also note that the Social Security “premiums” are the most regressive tax we have and yet this hardly ever gets mentioned by my friends on the Left or even the ones in the center who want to paint me as some sort of unenlightened bomb thorwer who just wants to see the world burn.
Federal government spending has grown more than 20% under Obama’s watch. The federal deficit has increased 40% under Obama’s watch. At what point is enough enough? Pretending this is the new normal is the problem. Recently I was chastised for mentioning Bill Clinton’s balanced budgets. Yes, taxes were indeed raised then, but federal spending was also brought below 19% of GDP. How about re-establishing that as the everything old is new again normal? Suddenly, poof, the deficit problems start to go away. We have a spending problem that no amount of new taxes will ever solve until we curb the appetite, because the appetite will continue to grow. It really is a philophical problem that keeps getting falsely rephrased as a political problem or an economic social justice problem. Sigh.
During the Clinton administration, health care costs were a much lower percentage of the budget. The growing debt does not come from new programs or discretionary spending. It is almost all health care. Solve that and we have no debt crisis..
Steve
@charles austin: Charles, I would say enough is enough once the employment problem has been solved. The longer this festers the more damage it does to families, to democracy and to the economy itself. If we can get this country back to work and back to real prosperity shared by all income levels, when the good times roll around again you can cut to your heart’s content.
Meanwhile we have empirical evidence that budget tightening at this time will be counterproductive. Everywhere it’s been tried in the last two years has seen its economy worsen, not improve. Britain, Greece, Ireland and Wisconsin are all experiencing a decline in economic output.
I say jobs and income growth first, then budget tightening.
Mr. Wolf, since your time frame includes Wisconsin, it would seem we also have a lot of empirical evidence that Keynesian stimulus spending will do nothing to cut unemployment and in fact seems to make it worse, so can we avoid that pretense again?
But seriously, I disagree with you conceptually on where you think jobs come from. I also disagree with the implication that there is some government action that can eliminate the pain we are going to have to go through for past sins. Whatever we do now is going to hurt. The sooner we stop digging the sooner we can fill in the holes already dug and climb out of them.
steve, that was only 14 years ago. If health care spending has gotten that bad in 14 years, just imagine what it is going to look like in 2025, which coincidentally is when I will be 65.
When political reality takes on reality reality, reality reality always wins.
Charles, the short-term deficit is not an issue and bringing it up is counterproductive at this point. Saying the deficit increased during a recession, is as useful to this conversation as noting the sky is blue. The stimulus spending was short-term and is winding down. Even if you didn’t like it, it is ending and not a part of the long term deficit. The other major Obama initiative was the PPACA which lowers the deficit and starts solving the problem of increased health care costs.
Social Security is currently lowering the deficit, not contributing to it, so why even bring it up?
David M,
1. The short term deficit is an issue due to it’s sheer size. The last three years have been unbelievable in the amount of debt the nation has accrued. Oh for the days of arguments about $200B a year deficits. Now it’s $1T a year as far as the eye can see.
2. Again, it is not just that the deficit is increasing but just how much the deficit is increasing.
2A. This argument would also hold a lot more water if the deficit wasn’t rising in the “good” times.
2B. I’d love to see some plan that addresses how we actually stop borrowing more money.
3. PPACA will not lower the deficit and it raises taxes. Saying it does not make it so and the assumptions made to require these ephemeral savings are nonsense, beginning with the “Medicare” fix Congress has to pass that is supposed to take effect on 1/1/12.
4. Social Security “premiums” are lowering this year’s deficit but increasing the debt on the balance sheet, unless you think that those 21 year olds paying into it today shouldn’t expect to get anything back. As bad as $1T a year in new debt and $14T in accumulated debt is, the stuff kept off the books in Medicare and Social Security commitments is truly scary. That’s why I think we are whistling past the graveyard no matter what agreement gets reached for this year, next year or the next ten years.
Just curious, but does anyone have a reference for a serious look at the US in terms of the usual financial documents: P&L, Balance Sheet, and Cash Flow? I would find that interesting not just with respect to this discussion but also as it would relate to things like comparing the US to China, et al.
Well, Charles has announced he is trolling the site and not serious about anything. Claiming the PPACA does not lower the deficit is a dead giveaway, although he does manage to top the usual nonsense by simultaneously complaining that it raises taxes while it doesn’t reduce the deficit, so I guess I have to bonus points for creativity.
@Steven L. Taylor:
Approximately true, but incomplete. An increasing portion of Social Security and Medicare expenditures are (and will be) financed via trust fund redemptions. These redemptions are paid for (either directly, or via paying off the public debt that trust fund redemptions create) by income and other taxes/fees that finance the Treasury general fund. A good part of the political battle over entitlements stems from the fact that many of the people who who pay the lion’s share of income taxes do not want to be stuck with the tax bill for these redemptions, especially since Social Security and Medicare benefits usually have less utility for those at the top of the income scale.
@David M:
Social Security is currently running a deficit; there is no longer a surplus. See the 2011 Trustees report or various other sources for details. It could be argued that Social Security trust fund redemptions don’t contribute to the Federal debt, but that’s a separate issue.
What is so annoying about the Charles Austins of the world is a blanket idiotic statement such as this:
“Now it’s $1T a year as far as the eye can see.”
Yes, as far as the eye can see if you are a do nothing conservative who believes in the status quo taxing of the wealthy and the continued obscene defense spending.
What about this vision of what the eye can see and deficits that might be reduced by:
Increased taxes on the wealthy and a 20% cut in defense spending. I guess this is too much for the morons on the right to stomach since the pentagon will have to make due with only $800 billion a year and the rich will have their taxes increased by 12%.
Oh, the horror, the horror.
Q, well, sorry to be annoying but here’s the director of the Congressional Budget Office saying Obama’s proposed budgets will add $9.5T to the deficit for the next ten years. And as he said elsewhere, he doesn’t estimate speeches and disregards the over-rosy predictions inherent in the claptrap coming out of the WH.
@Charles,
Your continued insistence Obama administration policies are overwhelmingly responsible for current deficits suggests you’re more interested in scoring partisan points than actually dealing with the budget. Until you accept that a third of the current shortfall is the result of continuing the Bush tax cuts, we’ll know you aren’t serious. Unless you accept 37% of overspending is due to a plummeting economy, your opinions can be dismissed. Only once you accept 20% of borrowing results from continuing Bush administration wars and bailouts for financial criminals can we say you want to get down to business.
None of this excuses the Obama administration from responsibility for doing the same thing; it does, however, mean that our current fiscal situation comes from following the lead of the Republican Party. In fact I think it safe to say that if not for the profligacy of the last administration we wouldn’t be here now.
I hope that one day you’ll break with your tribe and its shibboleths.
@charles austin:
You might want to think about that Charles. Economic weakness in Wisconsin has resulted from laying off thousands of government employees. Maybe you can explain how budget tightening in a recession is Keynsian policy.
Ben Wolf, with all due respect it is spending that has gone off the rails the last few years, and yes it predates Obama. If spending remained at the historic levels under 20% tof GDPhen none of these conversations would be happening rig tnow. Instead it has shot up to almost 24% of GDP and the future looks even worse.
As to the other comment, I guess I have to put some sort of symbol in for snark. I was just applying your logic to another situation, but I don’t think you took it correctly or understood it.
I think we tend to lean on ideology too much to try to split the difference between the parties. It’s a way of avoiding making elitist comments about the way people vote, but reality is reality. Politicians want to cut taxes and raise spending in aggregate. Sure there’s exceptions to the rule, but what are the laws that actually get passed?
We rant about republicans not wanting tax increases as if the dems didn’t just sign onto keeping the Bush tax cuts. As if Obama didn’t run on cutting taxes for “95 percent of working americans.”
And we rant about republicans being sober on spending/entitlments as though medicare part D is a democratic program. As though republicans didn’t hammer democrats about cutting medicare during the healthcare debates. Obamacare strengthens medicare’s finances and the GOP wanted no part of that, and hit obama for it.
Sometimes you have to avoid looking at politics through the eyes of party rhetoric. Sometimes we really do get the government we deserve, and politicians avoid these choices because the people want them to.
“Federal government spending has grown more than 20% under Obama’s watch”
Because a ton of people lost their jobs and got added to the benefit rolls, plus a temporary fiscal stimulus bill (which was 1/3 tax cuts, so the actual spending part was ~$475 billion, right?). At the same time, revenues fell for the same reason – unemployment. They’d already been lowish since the Bush tax cuts, and then those cuts were extended, making the revenue problem worse (I do understand the economic case for stimulus via tax cuts. I think short-term payroll tax cuts are ok).
Spending and revenue are both problems right now, and unemployment is a big factor in both.
“If spending remained at the historic levels under 20% tof GDP then none of these conversations would be happening right now”
BULL.
Hey Charles do you think all insurance companies should also default payments to the people who bought premiums because to me this is the same thing. When we bailed out the banksters we were all appalled when the CEOs received giant bonus`s the following year for (wait for it ) doing such a great job. We were told to suck it up because (wait for it ) That`s what they were promised they would get for doing such a great job. So when people like you think I should say go ahead take away what was promised to me I say (wait for it ) I did a great job and I want my bonus too.