This Week's Debate: Congress and the Budget

Flashback to 1994:

Anyone remember the Contract with America? It was that less-than-1000-word document that outlined what Republicans would do if they gained control of the House. And lo, they rode that contract right into the majority.

Item number one of the contract promised "a balanced budget/tax limitation amendment and a legislative line-item veto to restore fiscal responsibility to an out-of-control Congress, requiring them to live under the same budget constraints as families and businesses." As it turned out, they couldn't muster the votes to pass a balanced budget amendment to the Constitution -- which would have been a dangerous limitation in times of crisis when some deficit spending really is necessary -- but that doesn't mean they had to abandon the very principle of a balanced budget. At the least, it would be nice if they produced a budget that was reasonably close to balanced. (Of course the Contract also said something about eliminating waste and fraud, but apparently those minor details have fallen by the wayside as well.)

After passing $50 billion in painful spending cuts aimed largely at programs for the poor, the House has now passed twice that amount in tax cuts. In this Debate, we'll try to reach some conclusions on several budget-related questions. Perhaps most importantly: Assuming budget cuts must be made, which expenditures ought to get the ax?

As I see it, there are two parts to cutting expenditures. The first part is not terribly controversial: identifying and cutting government waste (renting office furniture when buying it would be more cost-effective, buying plane tickets and never using them, or duplicating functions already performed by another part of the government.) The second part is political dynamite: Deciding which programs and subsidies should be eliminated.

Someone, somewhere is always going to be benefiting from this spending and powerful lobbies are often involved -- as in the case of farm subsidies and sugar subsidies* -- so politicians tend to prefer to avoid spending cuts. Unfortunately for them, and us, the soaring budget deficit and the billions it will cost to rebuild the hurricane-ravaged Gulf Coast have made substantial cuts inevitable. But which costly programs and subsidies should drop off the government's priority list?

Entitlement programs, which apparently accounted for more than half (see item 2-6) of the federal budget in 1999, could be cut. However, the problem with many of those entitlements is not that they shouldn't exist, but rather that there is too much unnecessary spending within the programs. In the Medicare drug benefit, for example, the government could save a lot of money if the legislation didn't prohibit negotiating with drug companies for lower prices.

The Republican Study Committee proposed "Operation Offset." The plan advocates deep cuts in social programs like Medicare and Medicaid, slashing foreign development, and even eliminating aq bunch of programs promoting clean energy and conservation (curiously, those items mostly fall under the "corporate welfare" section. Call me old-fashioned, but I would contend that the real corporate welfare is all those tax shelters and loopholes. Close those and watch the dough roll in.) The libertarian Cato Institute offers this list of possible cuts, which rightly targets farm subsidies but is perhaps a bit premature (or just wrong) when it proposes cutting NASA's budget in half, saying, "NASA is obsolete with the arrival of private manned space flight."

There's no question that spending, particularly on pork projects, is out of control. And many fiscal conservatives, like economist Milton Friedman and George Will, are livid that it's a Republican-controlled Congress and a Republican administration that are ushering all this spending through.

The Jaded JD has a super blog entry titled "The beast never starves (or, How I Learned to Stop Worrying and Love the Deficit)" in which it says:

The difference between the anti-taxers and the deficit hawks, and why we deficit hawks are the true fiscal conservatives, is that we deficit hawks recognize that a balanced-budget requirement with > $7T in previously aggregated national debt is a lot worse than a balanced-budget requirement with ~ $3T in previously aggregated national debt. We fiscal conservatives--we deficit hawks--recognize that someone has to repay that aggregated national debt, and it's morally wrong to impose that burden on future generations (who will have their own 9/11s, Iraqs, and Katrinas to deal with).

Given our economic situation, what kind of tax policy makes the most sense? Do we need more tax cuts to stimulate the economy? Or is it time to restore taxes to pre-Bush levels in an attempt to reverse the last five years of increasing deficits?

Gerald Preante writes in the Tax Foundation's blog:

Lower capital gains and dividends taxes are typically preferred economic policy as they will lead to higher investment (all else equal). There are, however, other factors that need to be in the minds of lawmakers with regards to spending and tax policy, specifically the budget deficit. When governments must borrow, they are taking away money that would otherwise have been invested throughout the global economy, which can be a negative for investment. Therefore, given our current circumstances, there are multiple competing factors playing out when taxes on capital gains and dividends are changed.

What do you think, Debaters? Is this revenue-suppression sustainable? Is the country going to hell in a debt-ridden hand basket? Or is our economy perfectly capable of handling any debt we throw at it, as Kudlow's Money Politic$ blog's rosy economic picture might suggest? What steps, if any, do you think the government should take to ensure America's continued economic might?

*As I've mentioned before, I am not a member of the Post editorial board; the opinions expressed here are my own. I just happen to agree wholeheartedly with them when it comes to farm and sugar subsidies. If you haven't read Sugar for Trade, go check it out.

By Emily Messner |  December 14, 2005; 5:07 AM ET  | Category:  This Week's Issue
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Comments

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Emily, shameless hypocrisy is the coin of the realm in both parties. Back in 1992, here in Utah, I distinctly remember Senator Robert Bennett's campaign for the Senate on the theme of giving the President the line item veto. Guess who led the fight to have the line item veto overturned by the Supreme Court the very first time a democratic President (Bill Clinton) exercised it. Right. Good old Senator Robert Bennet of Utah.

Look. The Contract With America was a PR gimmick. The very fact that such gimmickry is used when it is convenient, then discarded like a snotty kleenex when it isn't is sufficient proof for me that all of those "principled" conservative republicans who came into power in the 90s are just as seedy, corrupt and dishonest as the democrats they replaced.

Posted by: Jaxas | December 14, 2005 10:58 AM

Corruption seems to be the watchword of the day. Here's a proposal to reduce it significantly. Ban all private funding of elections. Remove anyone from office who is found to have either used private funding or had any private person or organization spend money on his behalf (such as paying for advertising). Take a portion of the funds paid through withholding or direct tax payment ($5-10, maybe as much as $50 per year), put it in an election fund. Divide up among the candidates,(say 50% of the total toward all presidential candidates, 20% toward all senate candidates, 30% toward all congressional candidates). Set a time limit for campaigning, such as 3 months for primaries, 3 more months for final elections. Dole out the money monthly. This way the pot for the final contenders is greater than what each contender in the primaries had. Put everyone back on an even footing, living within a budget.

Posted by: Karenda | December 14, 2005 12:31 PM

Well, there is a war on. Won't it be nice when that excuse goes away.

The fundamental lesson here is that popular elections are incapable of enforcing agreed upon principles of good government. The incentives for politicians are such that they will predictably cut taxes and increase spending--inflicting the Keynesian curse. An amendment proscribing deficits is unlikely to solve the problem because the constitution lacks an effective enforcement mechanism. Congress directs spending and the executive branch carries it out. The Supreme Court does not sign the checks before they go out.

Madison envisioned diffuse competing interests preventing each other from taking benefits from the public coffers. Instead every interest gets its bit. We need structural reforms that will weaken the power of parties and lobbies. Restore the indirect election of senators. Perfect the electoral college system so that we actually vote for electors in their own right as non-partisan trusted citizens capable of distilling the reason from the passions of the people. Devise an independent commission to enforce the Constitution. The judiciary has failed in this. And with the recent trends in appointment politics it risks becoming less independent.

No institutional reform, however, will cure a passive and contented electorate ready and willing to surrender its liberties and its heritage for the comfort of centralized administration of services.

Deficit are merely a symptom structural weakness and decadent character. Perhaps it will require a crushing recession to turn our attention homeward to strengthen the most local institutions of home and community before we can relearn the lessons of fiscal responsibility.

Posted by: Matthew | December 14, 2005 01:05 PM

The Contract with America was not exactly a "PR gimmick". The Congress did pass four budgets from 1998-2001 that were in the green. This was significant. Not so much for the surplus it created, but because it demonstrated that spending could be slowed. The Welfare Reform Bill signed by Clinton is still regarded as the paradigm for success in curbing costly and unnecessary goverment spending.

The recent spending trends are indeed a disgrace. Emily is correct to assume that spending cuts should begin with the excessive earmark pork and waste, but in reality this will not greatly impact our current situation. Entitlement spending is now consuming nearly 60% of the budget. The fruit of the welfare state, contrary to what many believe, does not come free, and is certainly not sustainable at mandatory spending's current rate of growth.

Posted by: Jon M | December 14, 2005 01:06 PM

I'm with the Cato Institute. NASA is a national vanity project and needs to be trimmed back.

Both sides will argue what needs to be cut, but I'd like it if Congress made the accounting plainer. The Jaded JD makes the point that Americans vote for the government that reflects their personal habits, includeing credit cards. For every dollar that Congress allocates, I like to see where it came from, either via taxes or the national credit card. Then when the bill comes we can stop dining out on pork.

Posted by: Turnabout | December 14, 2005 01:21 PM

I curious as to what form the crash would take. Have any econmists prophesized it? Or would it even be a crash? Maybe a slow trickle out of the US economic balloon, leaving us in a recession. Emily?

Posted by: Turnabout | December 14, 2005 01:32 PM

Anyone who has not read the Congressional Budget Office Link that Emily posted needs to do so immediately.

Here is my own crunching of the numbers, correct me if any of this information is incorrect please:

Since 1962, when such records were taken, Annual Government Revenue has dropped 5 times.

1. From 1970-1971 it dropped by $5 billion. Richard Nixon was the President (I think)

2. From 1982-1983 revenues dropped by $17 billion. Ronald Reagan was the President.

3. From 2000-2001 revenues dropped $34 billion. George W. Bush was President.

4. From 2001-2002 revenues dropped $140 billion. George W. Bush was President.

5. From 2002-2003 revenues dropped $170 billion. George W. Bush was President.

Though 2003-2004 showed a revenue increase of $100 billion dollars, 2004 still generated fewer dollars than 2000 and 2001 by well over $100 billion. Arguing that tax cuts don't decrease revenues is insulting to my intelligence.

From 1992-2000, the tenure of Clinton, the national debt increased by about 400 billion. To his credit, it decreased by over $350 billion from 1997-2000.

From 2001-2004, part of the tenure of GWB, the national debt has increased by over $970 billion dollars.

Revenues from Income Taxes have decreased only 5 times as well sine 1962. Once in 1971-1972, once in 1982-1983, and 3 times from 2000 to 2003. 2004 revenues from individual income taxes are $20 billion dollars lower than they were in 1998, $70 billion lower than they were in 1999, and $200 billion lower than they were in 2000 and these numbers are unadjusted for inflation.

In 2004 revenues generated from individual income taxes and measured as percentage of GDP were the lowest they have ever been since 1962 (and beyond? I do not know) at 7.0 percent.
In 2003 it was 7.3 percent. This is the 2nd lowest it has been sine 1962.

Some would say this is because Bush has had to deal with wars and other things. I would say the numbers disagree:

Between 2001-2004 non-defense spending increased by 80 billion dollars. This is roughly the same that it increased from 1992-2000.

From 1992-2000, international non defense spending decreased. From 2001-2004 it increased by nearly %50.

In 2003 our frugal government set a new record for deficit spending (378 billion), shattering the previous 11 year old record from 1999 (290 billion) by nearly 80 billion dollars.

In 2004 our frugal government was so impressed they shattered the previous year's record by an additional 34 billion dollars, now setting the lofty poor planning record at 412 billion dollars. Yeehaw.

That's some pretty compassionate conservativism.

Posted by: Will | December 14, 2005 03:08 PM

Emily,
The contract did not commit to a balanced budget amendment, but to bring it to the floor for a vote on it. Indeed we should give credit to the terrible Newt for technically satisfying the contract. The 'PR Gimmick' question depends on an assessment of their actual commitment to the spirit contained in stirring opening statements of the contract and by that measure I must concur that it was indeed a marketing gimmick; and last night Frontline gave Frank Luntz credit for the marketing creativity of it.

As to your concerns about the 'dangers' of a balanced budget amendment. You must be refering to the use of the deficit as a stimulent to the economy. I say that because absent the stimulant issue, the objection on the basis of taking care of unexpected or unpredictable events, such as Katrina or the Iraq invasion,can always be accomodated by raising taxes to cover that spending; something which has the added benefit of forcing folks to temper their largesse with reason. The problem with the stimulant argument is that in practice we seem to find the need to stimulate the economy in both good times and bad.

Absent a balanced budget amendment, the only practical way to get a closer balance in the national budget is to make sure that no party has control of both houses of congress and the presidency. In the pejoritive way of putting it, if you want to control costs in the world of prostitution you must have competition between the whores.

Jon makes good points. Going a bit further, there are entitlement programs and entitlement programs. Social Security really should be an off budget program, as it once was. In came into the budget because its positive cash flow, since Greenspan did his reform thing, was just to juicy to resist. So are the deficits we are talking about net of the SS cash flow or including it? Beats me. And does our 7 trillion debe include the contents of Gore's 'lock box' or not? Beats me. But I do keep hearing the complaint that Bush has taken the deficit from 3 trillion to 7 on his watch. Hmmmm, lets see. That is about a 4 trillion add. He has been in office for 5.5 years. In round numbers that is 700 billion annually. Are you all sure you understand this? I'm not.

Posted by: Cayambe | December 14, 2005 03:23 PM

Turnabout,

Your data is sound, yet I believe your premise, at least an extent, is flawed. Although some on the Right have probably claimed that the motiviation for slashing taxes is to increases revenues, that is not (or should not be) the thrust of the argument. Although it can, and historically has achieved this result, the primary purpose is to increase economic growth. The Bush tax cuts have achieved this. Since the Bush tax cuts the economy has grown at a rate of 4.1%. This surpasses even the rate of growth during the booming Clinton years (which also increaseed in revenues though significant tax-cuts were passed) which grew at 3.5%.

Economic growth, not government revenue, is the sign of a robust economy. The Bush tax cuts have achieved this despite obstacles such as globalization and the mild recession that was creeping by 2001 and was exacerbated by the 9-11 attacks.

Posted by: Jon M | December 14, 2005 04:08 PM

I meant Will, not Turnabout...

Posted by: Jon M | December 14, 2005 04:55 PM

Cayambe-

I think under GWB increased the national debt by nearly a trillion dollars since he entered the white house, not 4.

John M-

If we are talking about the budget deficit, and growth accomponies decreasing government revenue and increasing deficit, than what good purpose does growth serve?

A better question because I am not an economist and you appear to know more about this than me. Why is growth a good thing? The following general trends have coincided with growth: Increasing disparity between the rich and the poor, larger deficits, and decreased government revenue. If tax cuts are the price we pay for "growth" why should I encourage "growth"?

Posted by: Will | December 14, 2005 06:13 PM

Will,
Thanks. I think you're right. I've since gone back to the site you pointed to and worked my way thru some of it. I even dredged up some xls files from there that may help if I can find the time.

Posted by: Cayambe | December 14, 2005 10:28 PM

Will,
Thanks. I think you're right. I've since gone back to the site you pointed to and worked my way thru some of it. I even dredged up some xls files from there that may help if I can find the time.

Posted by: Cayambe | December 14, 2005 10:29 PM

First, do not fall into the entitlements trap! SS and Medicare are funded by separate, regressive taxes and are (for now) running at a surplus. The government borrows more from them than it does from China! $500M per day from SS.

Second, do not believe that deficits can be eliminated by spending cuts! Do the math. It will not work, unless you are willing to cut into defense, prisons, border security, DHS as well as eliminating every penny of non-mandatory executive branch spending outside those categories (keep interest, veteran benefits, pensions, etc.)

What category of spending should we cut? Interest payments! A billion dollars per day! (counting interest on borrowing from the SS and Medicare trust funds) The tax cutters have locked us into tens of billions per year in new spending on interest, forever, even if we roll back their cuts. The interest on new debt in the Bush administration is larger than the $50B of painful budget cuts they just made. The new interest payments cost almost as much as Iraq, and more than you will see spent on Katrina.

How do we reduce interest payments? By paying down the debt! How do we do that? Massive tax increases to claw our way back from the mess that 24 years of Republican politics have wrought (26 - 2 years of Democratic control before the Contract). Let us start by restoring pre-Bush tax policies, and then add a gas/BTU tax, as proposed in 1993.

Posted by: Liberal Shmiberal | December 15, 2005 10:04 AM

Cayambe,

People who say Bush has taken the deficit from $3T to $7T on his watch are quoting some funky numbers that must include projected deficits in the future.

Let us stick with what we know. We have about $2.2T in new debt under Bush. That is money we have borrowed under Bush that we plan to pay back by robbing the retirement funds of our unborn grandchildren. And we will pay say $60B per year in interest on it. Forever. Until we pay it back. And mind you, we plan to borrow another say $400B next year. And the year after that. Etc. Until we change our foolish ways.

This new debt is on top of the $5.6T we had when Bush came in, most of it inherited from Reagan and Papa Bush. Remember the Savings and Loans? Still paying for that one.

Round numbers. The government takes in about $1.1 T annual in general revenue taxes: income+corporate+excise-EITC. Historic lows, in terms of percentage of GNP. In 2003, over three quarters of that money went to interest, defense/intel, and veterans/retirement. We borrowed about 35% of the budget. We are wayyyy out of whack.

Posted by: Liberal Shmiberal | December 15, 2005 10:21 AM

Will, great analysis, but your figures for new debt under Bush seem low...they must not include debt for borrowing from the governments own trust funds, e.g., SS and medicare. To me that is debt. When we extract $500M per day in surplus FICA taxes from people working minimum wage we look them in the eyes and say this is for your future. When we instead spend it on missiles we call it borrowing and put a new IOU in the lockbox. That is a debt.

Debt stands at $7.8T last time I checked, $5.6T when Bush came in. That includes all the debt, not just the part the self-described conservatives like to count. If we do not count all the debt, then our policy under Bush amounts to massive shifting of more of the tax burden from capital onto labor, all while telling the victims never you mind it is just some temporary borrowing.

Posted by: Liberal Shmiberal | December 15, 2005 10:36 AM

You are wasting your breath liberal shmiberal. Conservatives have a sort of theology on taxes and growth that insists that the more you cut taxes the more you will grow the economy, thus producing more government revenue.

The problem with this theology is that--assuming it is correct (and I don't)--it runs smack dab into another conservative theology that insists that any surplus tax revenues obtaining from all of this growth should be returned to the tax payers instead of funding existing government programs.

This latter theology is referred to as "starving the beast". What it really is is an economic system that deprives the nation of the necessary funds to run the government effectively while lining the pockets of the corporate and investment classes who plow any additional revenues they receive into risky but lucrative foreign ventures that sell American workers down the river.

Anyone who criticizes this rickety economic theory that runs the country into a ditch everytime it is used, is accused of waging "class warfare".

Posted by: Jaxas | December 15, 2005 10:37 AM

Jon M, economic growth under the Bush model is--like everything else under the Bush model--a chimera. having the consistency of a bubble of flatulence.

The Bush economic growth plan is purchased by driving the nation into unprecedented public and private debt and by flooding American markets with cheap imports while exporting our high end jobs to India, China and other Asian economies that are presently booming.

One day, this wobbly, stickman economy is going to come crashing down as it must when both the public and private financial institutions conclude that we have reached the limit of debt that can be sustained.

Anytime you opt for the quick, easy, short term solutions to economic growth that Bush has opted for solely for his own political benefit while in office, someone down the line ends up suffering for it.

That is the Bush model. Who cares if it is bad for our country, for our grandkids, for the poor sap that follows this anal, corrupt, poor excuse for a President? He is only interested in his pitiful legacy. It is all about him, you see. The war, the economy, our children's future, none of that matters. It is all about George W. Bush and securing his place in history.

I say f#*K him.

Posted by: Jaxas | December 15, 2005 10:50 AM

My personal view is that before tax cuts should be allowed, the budget should be balanced AND all future projections indicate either a balanced budget or potential surplus. Once the country is making payment for all of its debts and programs and promises, and showing true economic strength, that is the time to consider eliminating the wasteful spending in ALL programs, including the defense budget; that is the time to have healthy debate on program value/slashing; tht is the time to consider cutting taxes. We, unfortuantely, missed that boat and the folks in power do not have the ability, for whatever reason (and there are many) to right the current ship. Based upon current conduct, this country, within the next 10-15 years, will resemble pre-Katrina New Orleans/Louisiana (and many other places in the country)--rotting infrastructures of all kinds, rampant corruption and/or incompetence, an extremely large grouping of poor folk of all races and backgrounds (with a shrunken middle class), poor schools, little room for economic advancement, all without the great restaurants and music. All it will then take is one "disaster" of one sort or another to really cause significant pain and suffering--we will all be less safe.

Posted by: bubba | December 15, 2005 11:45 AM

"When governments must borrow, they are taking away money that would otherwise have been invested throughout the global economy, which can be a negative for investment. " was very nearly the GOP mantra during Reagan's rise to the presidency. It was often followed by a phrase like "passing this terrible debt on to our children."

Since this belief was a GOP hallmark, not a Democratic one, I believe that GOP supporters bear the onus for either living up to it or explaining why they have walked away from it.

Only news outlets like the Post are in a position to pose the question. Will your reporters step up to the plate?

Posted by: zak822 | December 15, 2005 11:59 AM

I do not mean to be inflamatory so please try not to be offended. But if one assumes that Hitler's true goal was the destruction of European Jewery and the initiation of the war had a lot to do with creating a climate conducive to achieving the "goal" that could not be acheived otherwise becasue no one would support the goal if it were disclosed and not shrouded in illusion and ideology. Likewise the republicans have sucessfully destroyed Social Security and Medicare through deficit spending. It is no longer a question of "reform" or "if" or tax priorities, it has been done. The numbers are simply too large to recover from. You can't grow your way out of these deficits and you can't tax your way out they are simply too large for that. The only thing you can do is cut and when one looks at the expenses >90% is defense, interest on the debt, social security and medicare. We have a 40% shortfall to make up (more if interest rates rise) and all discretionary programs total a mere 10%. So one has to cut from those items listed above. Which shall it be? Interest on the foreign portion of the debt is off the table unless one wants to recreate the French revolution or the depression so in effect you have defense, social security and medicare with which to make up a 35% shortfall. The deal has been done. Their goal has been achieved. As soon as the rest of the world restricts our credit it will be a great shock to everyone that this is the situation we are in. Deficits did matter. They were the plan.

Posted by: Paul Bogdanich | December 15, 2005 01:12 PM

Never apologize Paul for speaking your truth, it is only lies I would apologize for.
I am sure there is a plan, with the reduction of Social Service spending and a coming recession which economists in other countries are talking about regarding the US debt. The middle class will become the homeless and living under bridges, with all protection removed. What is next people get angry at the situation they are put in and start finally responding to their governments corruption and debt.
Call in the cops. Look people are attacking each other, civil war amongst the little people.Suits the government-we better maintain public order. Control the population.Police state.No truth in media, no hope for a truth. Rosy reports from CNN.Just another day in America where people only ask for the truth at last call.
Announcement from Great Britain today-they are having emergency investigations into Aspartame.Should never have been licensed, looks like even minimal use can give you ongoing tumours.Owned by Rumsfeld who did some dirty dealings to get it approved. Let us see if it hits the news in Coverup America.Apparently Europe has now decided to treat it as an emergency too.

Posted by: SpeakoutforDemocracy | December 15, 2005 02:16 PM

Will: I agree we have a budget deficit problem and a debt problem. These (especially the latter) are serious issues and need to be addressed by lawmakers in a bipartisan fashion. The truth is, we have a spending problem. Not right now, but in the near future (15-30 years), when mandatory spending will reach astronomical and unsustainable levels. Soaking the rich could work for a short time to sustain entitlements, but would retard the economy in a dangerous in harmful way.

As to your second question, growth is good because it benefits everyone (admittedly some more than others). We may differ philosophically here; I don't have a problem with wealth disparity. When economies grow the standard of living rises as a whole. That is why poor Americans tend to: always have food, have cable, average an automobile per household. The bottom 15 percent in this country would rank as the twenty-first wealthiest nation in the world. Unlike other places in the world, Americans in poverty tend to have obesity problems, not malnutrition problems.

Jaxas-I fear your rabid Bush hatred makes you sound a bit irrational.

"He is only interested in his pitiful legacy. It is all about him, you see. The war, the economy, our children's future, none of that matters. It is all about George W. Bush and securing his place in history." --- Frankly this sounds delusional.

Globalization was here before this President. As were the national debt (7 trillion), Aids, and world poverty.
I grant you globalization is indeed a topic that stirs emotions. For a better understanding of the subject, I recommend Tom Friedman's (Hardly a Conservative) new book, "The World is Flat."

Real life is not a comic book. Contrary to what many believe, G.W. Bush does not want to create a theocratic state operated by Jews (neo-cons) and Christian Evangelicals (social conservatives), or create an Imperial American Empire.

Posted by: Jon M | December 15, 2005 02:25 PM

I thought Paul was talking nonsense so I had to check the numbers. He was correct.

The majority of government spending is considered mandatory spending. Mandatory spending are all those outlays that are demanded by perminent law. In 2004, program spending (ie: mandatory) cost 1.3 trillion.

Discretionary spending was considerably smaller than 1.3 trillion in 2004, at just under 900 billion dollars.

In 2004 the budget deficit was -412 billion dollars.

Just over half of that discretionary 900 billion dollars was spent on defense: 454 billion big ones. Typically lowering this during a time of war isn't politically feasible, and we certainly can't expect the TOUGH ON TERROR party to lower it with their, what feels like, permanent tenure as supreme overlords of the important branches of government.

A little under 34 billion in discretionary spending is sent to non-defense funds overseas. This is the highest it has ever been and it was over 12 billion dollars cheaper prior to GWB.

That leaves 407 billion in domestic discretionary spending. Even if we cut all spending on domestic discretionary spending the deficit would still be -5 billion dollars.

So, cutting all discretionary domestic spending would not necessarily eliminate the budget deficit. Any ideas? Please?

Posted by: Will | December 15, 2005 02:44 PM

Jon M-

I agree that we have a spending problem. We would not have a spending problem if we did not have to pay interest on the enormous debt.

I think spending cuts alone cannot fix the budget deficit, especially if they coincide with tax cuts. We need to find a way not just to decrease outlays but also to increase revenue. Any one sided plan is doomed to failure because it ignores the scope of the problem: -412 billion dollars in deficit cannot be cut from our discretionary domestic non-military budget because total outlays for discretionary domestic non-military spending were less than 412 billion dollars!

Why on earth are we cutting taxes right now? If we cannot sustain the national debt and growth increases the national debt, than we can't sustain growth either!

Thoughts?

Posted by: Will | December 15, 2005 02:54 PM

We shuold cut taxes becuase it is the moral thing to do. No one person in America should pay more than 20% of their income in taxes (both federal and state). We should also get rid of social security. After all, where does the constitutional authority for this program come from?

The problem with spenders is that they will never be able to curb their appetite. Can you think of a cheaper way to buy votes than to use someone elses money?
The political class understands this (Dems and Repubs).

The only way to solve this problem is to have a constitutional amendment that calls for a flat tax and that any increases must be temporary and require two thirds approval.

Government has earned the right to be cut off.

Yes, there would be short term chaos because of this type of change but we can adapt. That is what we do when we have economic freedom.

Happy holidays to all.

Posted by: Jeff | December 15, 2005 04:20 PM

I think that everyone is forgetting the Golden Rule. For corporations (who have now soul to damn and no body to jail) and those of the upper class this situation does not pose a risk. They can weather any economic storm, if necessary moving to another country. The party in power in all three branches of the federal government is mostly friendly to their concerns and their necessary investment (taxes, bribes and campaign contributions) to keep the status quo seems to getting cheaper every year.

The Golden Rule?....he who has the gold rules.

Until our country is a total economic wreak or until the voters that are hourly workers start voting against the party of the upper class nothing will be done. Why should the economic rulers of our country have it any other way?

Posted by: Cal | December 15, 2005 04:20 PM

Hi Jeff-

Saying it is "immoral" to tax anyone more than 20% of their income doesn't actually make it so. The redistribution of wealth has a long and storied history in our country and is founded on morality. Progressive taxation forces the most well off to redistribute some of their wealth to the least well off because the richest enjoy to a larger degree the benefits of a Capitalist society. There is a moral and pragmatic justification for progressive taxation.

Cutting taxes would increase the deficit and the debt. It is immoral to heap our own fiscal responsibility on the shoulders of our unborn children or grandchildren.

Social Security currently generates over 150 billion dollars worth of government revenue a year. Abolishing Social Security would eliminate a significant portion of government revenue and exacerbate the problem of increasing debt/deficit. This is immoral.

Furthermore, for the unlucky few who do not have the means to purchase computers for dialogue on websites, social security represents the majority of their future retirement finances. Sine eliminating social security actually costs this country money, the justification for eliminating their payment checks would necessarily be spiteful.

Because the poorest 50% of the country only account for 3% of the government's income tax revenue, increasing their taxes from 10-15% to 20% holds virtually no realistic revenue benefits. However, since the richest 5% of the country pay for 50% of the income taxes, decreasing their income tax by 15% would decrease total income tax revenues by nearly a quarter, thus once again exacerbating the deficit problem.

When you say there would be "short term chaos" you are willfully igonring the facts. The majority of this country is not rich and does not pay 35% taxes. What you are proposing is dangerously irresponsible both from a humanitarian position and from a financial one. I beg that you will explain how to offset the funding windfalls your plan would create with other tax-solutions. Please?

Posted by: Will | December 15, 2005 04:36 PM

Perhaps the most effective way to a reasonable management of our nation's budget is to attack the true root of the problem. The only way to get fiscal reponsibility from our elective representatives is to make them represent the nation, not the money.
Lobbyists and campaign contributers exert too much power over the processes that lead to both true corporate welfare and the ethical lapses of our politicians.
Treating these monies as a freedom of speech issue is asinine. It is another way to say that money talks. It is also a way to say that those without money have no voice. Without a voice in their representation people have been known to revolt.

Posted by: Shannon | December 15, 2005 04:40 PM

One idea on the debt: when it is called in, "persuade" creditors to forgive it "or else". After all, that is why we have a military. (Tongue firmly in cheek).

Posted by: Adrian | December 15, 2005 04:45 PM

Will-
We will raise revenues through economic growth (our previous discussion). Tax cuts do perpetuate economic growth. This is actually a Democratic idea, not Republican:

"It is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut rates now...The reason is that only full employment can balance the budget and tax reduction can pave the way to full employment. The purpose of cutting taxes is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which will bring a budget surplus." --John F. Kennedy, December 1962

Admittedly, tax-cuts and economic growth are not magic wands. The welfare state is growing at a rate that will simply not allow us to give 25% of low income Americans free healthcare and prescription drugs. Social Security has scandelously been used as a pork trough for the last seventy years. Because of this it will be insolvent in 12 years without major tax hikes. Spending, across the board needs to be reduced.

Now, the budget situation is gloomy, but I refuse to call it a 'crisis'. Annual reveneus from 2006-2015 are scheduled to reach nearly 15 trillion. This is still the most robust economy in the world. We could address this problem if politicians would cease the opportunism. Unfortunately, economics and politics don't mix. But we have faced worse. If you want to see a real crisis, read about Hamilton's stint as Secretary Treasurer after the Founding. A strong wind would have wrecked the infant Republic.

Posted by: Jon M | December 15, 2005 04:45 PM

Jon M-

Because I am not a member of the Democratic party I couldn't care less whose idea tax cuts are.

And frankly, the 350 billion dollars in interest we paid on the national debt last year was over 3 times more than Kennedy's entire government revenue in 1962. As a percent of the GDP, we pay nearly 3 times in interest that Kennedy did.

If there is anyone to blame for the current "growing welfare state" it's the same group of people who are to blame for lowering taxes. This is terrifying. If the party-in-power insists on increasing government spending and cutting taxes than it's time for a regime change.

I don't appreciate the relevance of the Hamilton comparison nearly as much as you do because I think it's archaism makes it immaterial. Maybe I am wrong.

I just don't understand how a government can even have an honest dialogue with its constituency about the "costs" of social welfare until it actually pays for it! If the government actually taxed the citizenry enough to fund all the social programs it would get the support it needed to pull the rug out.

What guarantee can you give me that in 2010, when things are apparently going so awesome for us, that 350 billion a year in debt interest won't increase? Every dollar we chop off the interest is a free dollar. It isn't redistributive (we can increase defense but we must cut education), it is distributive. Currently we pay hundreds of billions of dollars to service INTEREST which has no social utility.

I will repeat: we absolutely need to cut spending immediately. But the scope of this problem transends spending cuts. At some point we have to acknowledge that we own robust government services that are here to stay. At least until we force the electorate to shoulder the transaction costs necessary to fund those services.

Posted by: Will | December 15, 2005 05:10 PM

(1) It's not tax cuts or deficits per se, it's how they're targeted. Some tax cuts lead to offshore investment, others to domestic investment and jobs. Deficits that invest in decayed infrastructure or education help, deficits to fund unilateralism abroad less likely to.

(2) If you look back to 1994 polls, you'll find the Contract was not aligned with most public opinion.

Posted by: Paul | December 15, 2005 06:10 PM

I understand how deficit spending can improve growth. There is a different between the kind of deficit spending you are talking about (which is borrowing money with the intention to pay it back later) and the type of deficit spending our government has utilized for the past 4 decades.

There is nothing "beneficial" about 8 trillion dollars in debt or 350 billion annually in interest payments towards that debt. That is not cyclical borrowing, it is just blatant irresponsibility and, frankly, should be criminalized.

Would you loan someone 400,000 dollars to build a house if you found out they owed credit card companies 8,000,000 dollars?

Posted by: Will | December 15, 2005 06:16 PM

Will,

"If there is anyone to blame for the current "growing welfare state" it's the same group of people who are to blame for lowering taxes."

This is false. The welfare state is primarily a product of FDR/New Dealers and Johnson's Great Society.

Also, you fail to appreciate something. Our debt has allowed us to grow economically, the same way a business is able to prosper and grow through loans and investment.

Now, I FAVOR a balanced budget. I just caution that you can't just tax your way to it. High tax rates (generally understood as revenues which exceed 18.5% GDP) retard economies. This is an emperical fact.

The interest we pay on the debt is unfortunate, but not as catastrophic as I think you believe. We pay around 2% of our GDP in interest. Most Americans pay a higher income/interest ratio annually just making their car and house payments.

These figures sound daunting, but they are not a real problem. YET. If changes are not made, this will be a different story. People are living longer. We all know the stats: a 16-1 worker/S.S.recipient ratio in 1939 compared to 3-1 today (soon to be 2-1). Healthcare is achieving advances that we once watched on Star-Trek episodes, but it is EXPENSIVE. And we must make sure EVERYONE has the best. These things simply cannot be done.

As to my Hamilton allusion and its "archaism", I think you fail to appreciate the crisis he/the nation faced. I won't bore you with details, but before dismissing it because it, uh, happpened a long time ago(?) you should check it out. Hamilton (thankfully) was probably the most brilliant American during an age of brilliant men.

Posted by: Jon M | December 15, 2005 07:17 PM

I take a pessimistic view about our national debt and economic policy. The US is just another Republic in decline in the grand history of the world. We reached our peak living standard for the general population in the 50's (before I was born)and now we are rapidly on the way to flaming out. By the time I retire (30 years or so), I fully expect the US to be just another middle tier nation. Maybe the US will be bankrupt; maybe it will be in a long recession. Maybe not. But I am sure that my living standard will be greatly diminshed because of the legacy of debt and uncontrolled spending. I am taking financial steps to prepare for this event and I am not following the lead of our political leaders. Please, someone, prove to me that a change to our economic policy will not be too little and too late!

Posted by: Denial A. River | December 15, 2005 07:21 PM

Jon M-

"This is false. The welfare state is primarily a product of FDR/New Dealers and Johnson's Great Society."

I was more referring to the rampant government spending increases imposed by the Republican party during its tenure in both the executive and legislative branch.

"Also, you fail to appreciate something. Our debt has allowed us to grow economically, the same way a business is able to prosper and grow through loans and investment."

One key problem with this analogy is that businesses who don't pay back loans cannot continue to borrow. This is not true of America. No amount of failure to balance the budget has ever encouraged Americans to actually pay for the social services it renders. You can pray at the alter of growth as soon as you generate a surplus, until such time I refuse to acknowledge "growth" as beneficial.

"Now, I FAVOR a balanced budget. I just caution that you can't just tax your way to it. High tax rates (generally understood as revenues which exceed 18.5% GDP) retard economies. This is an emperical fact."

Currently tax rates do not exceed 18.5% of the GDP. So I guess we have some wiggle room and you agree that we can raise taxes a little.

Do you think we should be cutting taxes?

"The interest we pay on the debt is unfortunate, but not as catastrophic as I think you believe. We pay around 2% of our GDP in interest. Most Americans pay a higher income/interest ratio annually just making their car and house payments."

Well, we paid around 3.6% of our GDP in interest in 2004, so I'm not seeing where you get the "around 2%" figure.

If you have already admitted that not-balancing the budget is a problem, than what are we arguing? I am not suggesting we turn America into a communist state. I think our elected officials need to have a frank discussion with teh American people about our books, namely, that they don't quite add the fuck up. Americans can demand social services only as long as they are willing to pay for them. This Republican congress seems dangerously willing to pander to all comers: you can have all the social services (and more!) and you don't even have to pay for them.

In a country where the vast majority of individuals are not rich you cannot just continually cut their social services unless you show them why doing so is beneficial in the long run. Our current governance fails to do so.

Cutting taxes after record deficits is absurd. Will you at least give me that?

Posted by: Will | December 15, 2005 09:14 PM

1. Entitlements are a red herring.

Entitlements (SS and medicare) are a big problem. But they are a different problem. They are a future problem. The "debate" is about a current problem: massive deficits in the general fund.

And the deficit is not because of entitlements or social services. Let's review the numbers. SS and medicare, fully self-funded by regressive payroll taxes, running at a surplus, loaning money to the rest of the government. The general fund, $1.1T of taxes collected in 2003, over $1.5T spent. Massive deficit. Huge deficit. Spent on what? "Social services"? Sure, some: yes we have medicaid, a big hit, and unemployment insurance, which has grown enormously under Bush (not his fault, but he's not doing anything about it either, sorry). There's corn and sugar ($20B per year), picking up the tab for United Airline's pension obligations, checks to cruise ship companies for Katrina, and bridges to nowhere.

But the real money is in two areas: security spending (defense, borders, prisons, DHS, war on drugs, intel) and bills coming due from the past (interest, federal employee pensions, veterans).

2. We cannot cut our way out.

Everything else the government does with the general fund, outside of those two categories, is way smaller than the deficit. So, repeat after me: you cannot balance the budget by spending cuts alone. Not even close. Facts are so cold, so unyielding. Deeper in the hole every year. No end in sight.

We can talk about spending cuts, but it is mostly just noise and posturing unless you can get a $100B annual chunk back out of the Department of Rumsfeld. Sure we should spend less. But we cannot cut our way out of this. There will be pain. Real pain. You will feel it.

3. Interest is the biggest income transfer program in the general fund.

Now, let's talk about that interest. $180B paid out in interest in 2003 on US Treasury debt securities (the CBO "public debt", not counting the interest "paid" to SS and medicare trust funds...yes, it is about 2% of GDP...but the interest on the "real" debt is indeed about 3.6% of GDP). $180B annual is more than all your welfare spending from the general fund. $180B in hecks written from the treasury general fund and mailed to people who had money to loan us. Mostly they are Japanese and Arabs and Chinese. $500M per day, every day. There's your welfare state.

4. The Republicans have not cut taxes, they have only deferred them.

When you are running a deficit, tax "cuts" are just asking your grandchildren to pay your bills, with interest. Now THAT is immoral.

5. Norquist has no power unless we let him have it.

Yes, I know about starving the beast. But I don't think that is what this is about. I think this is about groupthink and head-in-the-sand ignorance. People think: if other people aren't worried, why should I be? The numbers are "boring", for "policy wonks". I want to see the Washington Post give it more attention. It is a great story. The crashing fall of a mighty giant, brought on by a moral collapse and willful blindness. With a subplot of the biggest heist in history.

Posted by: liberal shmiberal | December 15, 2005 11:18 PM

Pass a flat tax of 17% and close loop holes and that will bring in Tax dollars. Secondly stop forgiving foreign loans and have them pay back what they borrowed. Congress does not forgive a US citizen from educational loans.

Posted by: Bud | December 19, 2005 02:45 PM

additional on Hal Rogers

We have many areas of economic employment that pay at the best minimum wage, work people only part time, and do not give people health insurance! At the best you might if you are lucky get a job in a factory and many of them do not pay well either unless you have been there for many years, they do however sometimes provide insurance.

There is also a predominant business in foster care and adoption through the use of coercion and force based on false and anonymous complaints of abuse and neglect that they are using to build data bases as evidence of mental illness with, and day care often goes along with that. They are now mixing government subsidized housing, food stamps, jobs, and medicaid with the mental health department to use as part of the data base.

It is here that four social workers were found not guilty in a case that they were involved in where the parents were literally allowed to beat the child to death because there is not accurate data given and or adequate resources to meet the real needs of this now business. I saw the pictures of this baby in that case, and I do not like remembering them. The disadvantaged parents ended up in jail for murder charges and the state paid thousands of dollars for the social workers defense and they were found innocent of any wrong doing. One of their expert witnesses in their defense bragged about getting one hundred dollars and hour for her time in that courthouse.

We have a state that is trying to pass legislation to stop medical malpractice suits, when there is actually a large amount of medical malpractice and negligence here. We have a psychiatrist that is a leader in this state on medicaid issues and how to get it to pay for those that are deemed mentally ill to have them take psychiatric medications even though these medications actually do cause all kinds of medical and social problems in and of themselves, and do not cure any of the real issues or problems.

Here it is who you know and what you can do for them personally that determines what jobs you get or do not get! It is who your friends and family are and where you go to church that determines all kinds of things from the jobs you get to the social programs and support that you will get or be coerced and forced into using. I once had a deacon of a church get me moved into first place on a housing list that I had before this been denied from and was newly signed up on.

It is routine to buy and sell votes, and because people have been determined to have psychiatric labels in many cases then they are not good witnesses for any kind of prosecution in these cases so nothing much ever really happens to stop it. Of course the republicans control this area because they are the ones that have the money and the influence to buy the votes. In fact they get together and work at doing this in their homes, if anyone does go down for it then they go to jail. However, you can bet that when they are released from their time they are set up real nicely ever after.

This area is also a part of the bible belt and you commonly hear those in the government making statements about how they will mix up the religion, such as putting the Ten Commandments in the courthouse and making sure that this is Christmas day, with the government even if it is unconstitutional and there is no shame in that. My father Paul Lee was the one that got the ACLU to take the case that was recently heard in Pulaski County.

You do not dare speak out about any of the corruption publicly unless you are wealthy because every one knows everyone else and they know where you live and every thing about you or they think they do and it is easy to set you up to penalize you for it. Once you get a name as a trouble maker which you will if you speak out about any of it, then it is commonly known and accepted that the law enforcers of any kind will be after you for any thing that they can be and they find out every least little thing that they can be on you about and watch you for even any small traffic violations that they can. Those that do not understand or know this soon learn!

The criminal justice system does not really have adequate resources to actually defend the people that are poor so they ask them to make plea agreements. Many times these plea bargains include some kind of psychiatric control in one form or another. Once one gets labeled with a mental illness label then it is so easy for them to be made to fear what will be done to them if they do not allow those in political control to do what they choose to do without speaking out about it!

People are convinced here that if there is not any other way that it is just as easy to play crazy and get a crazy check and let psychiatrist and mental health facilities inpatient and outpatient programs prescribe treatments and unwanted psychiatric drugs for them and their children, so they can get a check or needed income, even if they do not take these drugs, sometimes sell them on the streets for cash to those already addicted to them, or throw them down the toilet into the drinking water. There is no group for those who have been a part of this poverty cycle that does not promote taking these medications on a daily bases, even in Kentucky government there is no consumer/survivor groups that are not based on taking these medications on a daily bases.

They promote this because it is commonly said to be the only way that one can "prove" they need a check for their disability which has no other real and factual scientifically based evidence for it. The American Psychiatric Association, the Surgeon General of the United States, and NAMI can give none that is not based on answers from textbooks.

Much of this psycho-social-court ordered psychiatry is paid for through medicaid, at the expense of not having enough resources for the real medical treatment that is needed like eye and dental care or other real disease treatment. That is one reason that you see many poor local people without any teeth. And the republicans are now controlling the government coercion and force behind much of this.

Hal Rogers and his crew support this type of thinking. Many campaign contributions come via this multi-million dollar psychiatric drug business and mental health industry trade.

This is an area that depends on jails, prisons, and mental health as areas of industry. There are many jobs in it. People do not understand that it is not so much helping them or their families, but helping itself by producing this billion dollar industry! I do not know when it will, or how to make it, stop! All I know is that we have big problems and issues here that are not really being addressed and the poor people are not the real cause of it, but the ones being blamed and shamed the most and oppressed and actually terrorized because of it. If any one has any suggestions of what to do about it then I would be glad to find out? Any comments would be appreciated.

Posted by: Janie Lee | December 25, 2005 02:06 PM

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