Good budgetary policy is hard to put into practice

By Karl Reiner

It is an accepted economic principle that governments can run budget deficits to combat recessions.  The resulting debt is then paid down by budget surpluses when the situation improves. In practice, the U.S. runs constant deficits.  Instead of reducing debt in good times, it cuts taxes.  As a consequence, the national debt is over $17 trillion.

The national debt increased an average of 14.2% per year during the Reagan presidency and 11.7% yearly during the term of Bush I. The average yearly increase fell to 3.9% during Clinton’s term, the result of the first budget surplus in many years.

Due to war expenses and tax cuts, the national debt increased by an average of 8.3% per year during the administration of Bush II.  Due to recession fighting programs, the yearly increase was running at 11.3% early in President Obama’s tenure.

As the U.S. recovers from the Great Recession, the federal budget deficit has declined, slowing debt expansion.  The deficit for fiscal year 2013 was originally estimated at $973 billion by the Congressional Budget Office (CBO).  It was $680 billion, the smallest deficit since 2008.

The U.S. GDP (the market value of the nation’s output of goods and services) is running at $16.6 trillion per year.  In 2012, the national debt reached 100% of GDP. While current deficits are shrinking, the CBO estimates they will increase later in the decade due to the cost of supporting an aging population and increased interest payments on the national debt.

Social Security, Medicare, Medicaid and children’s health programs accounted for around 44% of federal spending in 2012.  Americans say they oppose excessive spending and chronic deficits.  They also support benefit spending.  A willingness to be taxed (especially upper earners) is what is lacking.

Although the country needs a functioning government, the Tea Party pushes an anti-government agenda. Budgets are now dictated by sequester.  The government was closed and the debt-ceiling issue driven almost to default.  The deal made in Congress pushed the problems into next year.

The Supreme Court has ruled that the payment of social security tax carries no right to benefits since Congress can change them.  Due to the tepid economic recovery and political gridlock, many younger people believe they are paying taxes for social programs that will not be around in the future.  Their trust in government continues to ebb.

If the U.S. is going to reduce debt to  a sensible level, adjustments will be needed.  Modest shifts in eligibility and benefit levels in social programs that can result in large savings over time have to be explored.  The Tea Party has to stop trying to dismantle programs and drop its opposition to raising revenue.

A growing segment of the public thinks Congress gets paid to make government work, not shut it down.  As a result of the government closing, Republicans have a favorable rating of 28%, the lowest ever recorded.  In the absence of political consensus in Washington, it is a hopeful sign.

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