What can we, and should we do about the deficit?

Where can we and should we cut?

I last addressed this in my post of October 28th under the title: "The Deficit – One Big Hoax (Part VI)," which I urge you to re-read.

In that posting, I address the insincerity of Republicans claims of concern with the deficit, while every one of their proposed budgets would vastly increase the deficit.

I then went on to point out, that despite the gamesmanship, there is only one purpose in creating the deficit and making it an issue, and that is to eviscerate and destroy the safety net that has been built over many decades, and the protections to our health and safety, so that those who already have the bulk of the nation’s income and wealth, can further increase it at the expense of the poor and middle class.

But that does not mean that we should descend into our own fairy tale world, and pretend that the course we are on is sustainable. Increased revenue is essential, but controlling our ever-increasing costs, is equally essential.

For instance if we leave the Bush Tax cuts in place for those making $250,000 per annum or less, as has been proposed by the President, we would be increasing taxes only on the top 3% of earners and we would only be increasing tax receipts by $800 billion over 10 years. See here at 1:44 minutes. When we consider that the deficit was projected by the Congressional Budget Office (CBO) at $1.3 trillion for the year 2010 alone we can see this is a piddling sum. However if all the Bush tax cuts were left in place, the deficit would be decreased over ten years by four trillion dollars, a much more significant sum, but still not enough to solve our projected deficit, which the CBO estimates at six trillion over ten years, without counting interest payments, and assuming that no laws were to be changed, which is unlikely.

But the attempt to put a rosy, but untrue, picture on our outlook can be seen from an article which appeared in the Washington Post, written by E.J. Dionne, a man who has written many insightful columns in the past, but who posits that doing nothing would lead to $7.1 trillion in deficit reduction over the next decade. Now what is interesting about this is that the CBO says doing nothing would still lead to over a 3 trillion deficit over ten years, and doing nothing is unlikely. Most important, doing nothing would mean not extending the Bush tax cuts for those earning under $250,000, when the President, the Left, and the Wall Street occupiers give us the impression that if we just focus on the top 99% all will be honky dory. It’s a fairy tale! I say wake up!

Furthermore changing nothing, outside the Bush tax cuts, is neither likely nor desirable. If you will look here, you will find the Dionne article reproduced, with my comments interjected in red, showing why many of the things Dionne assumes could be left unchanged, need to be, and are likely to be changed.

Reverting again to my post of October 28th I point out that according to the Social Security Administration, “Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.” But I go on to say, “this should be addressed, not as a budget issue, but as a sustainability issue.”

As can be seen from the above we will not solve our deficit problems with increased taxes alone, and certainly not with increased taxes on the top 1% alone, or even those making less than $250,000. We need to end the Bush tax cuts in their entirety and we must look to making intelligent cuts.

It is for that reason that I address this subject. In my post entitled "The Deficit – One Big Hoax (Part VI)" I began to address some of the areas where we could, and should, beneficially cut, and I begin with the drug wars, where, I point out that there are already major voices across the political divide calling for an end to this destructive and expensive war.

According to Bernd Debusmann, a Reuters columnist:

The budgetary impact of legalizing drugs would be enormous, according to a study prepared to coincide with the 75th anniversary of prohibition’s end by Harvard economist Jeffrey A. Miron. He estimates that legalizing drugs would inject $76.8 billion a year into the U.S. economy — $44.1 billion through savings on law enforcement and at least $32.7 billion in tax revenues from regulated sales. (For a total of 76.8 billion per annum or 760,800 billion over ten years, over 3/4 trillion. And this is before we add in the benefits to the economy. 

The war on drugs has helped turn the United States into the country with the world’s largest prison population…The U.S. has 5 percent of the world’s population and around 25 percent of the world’s prisoners. Ibid  

In addition to the law enforcement expense, we must add in the cost of incarceration. Here we find that his cost alone amounts to over $6 trillion per year to the states with additional costs to the federal government.

We begin to see that cutting in order to deal with the deficit can be beneficial. The only purpose for reducing some benefits in entitlements is to make them sustainable.

I must add, however, that I do not favor states passing laws to make Marijuana available as a medicine. This has the effect of bypassing the FDA, and no substance should be made available for therapeutic purposes without the rigorous double blind studies, that all such drugs are required to undergo.

Comments are welcome and will be distributed with attribution unless the writer requests that he/she not be identified. 

The Deficit – One Big Hoax (Part VI)

In my last twelve posts I departed from my discussion of the deficit in order to focus on the columnists of the media and the media in general, with special emphasis on the New York Times.

However, it is now time to return to the subject of the deficit, the last part of which was posted on July 30. I suggest that you re-read it and if you can possibly find the time read all its parts. You can find the last post here and that post will give you links to all the others.

At the end of my last post on this subject I said:

Next time: What can and should we do about the deficit and the imminent insolvency of Social Security, Medicare, and Medicaid? Where can we and should we cut?

I will address this here, but before I do so let me return to the subject of this series, namely The Deficit – One Big Hoax. I called it a hoax, not because I don’t think that it is a serious problem, I believe that it is, but because the Republican Party is using it as a hoax to justify its primary aim, which is to destroy all that we have built over the last half century and even before. To not only repeal the Presidents greatest achievement in passing Health Insurance Reform, but to repeal Social Security, Medicare, Medicaid, and even to destroy the agencies that safeguard our health and our well being, including the minimum wage and occupational safety, and I kid thee not, if they can get away with it, our system of free public education.

Their lack of concern with the deficit can easily be seen in that not one of their proposed “reforms” decreases the deficit. The Ryan plan, which has passed the House with almost unanimous Republican support (four Republicans voted against it and no Democrats voted for it) would, according to Representative Paul Ryan himself, add $6 trillion to the national debt over ten years as reported by the Economist, hardly a left wing source, and as far as I can find nowhere else in the media.

The same goes for all the proposals for “tax reform” touted by the Republican Presidential candidates. Whether we are talking about the famous (or infamous) 9/9/9 plan or the newly touted flat tax plan of Rick Perry, each one would increase the deficit that they are so ostensibly worried about that they threatened to put the country into default. Yet the media, not even the so-called liberal media, has bothered to point this out. E. J. Dionne Jr. writing in the Washington Post said:

What struck me about Rick Perry’s unveiling of his flat tax proposal is how little attention most of the coverage paid to the massive increase in the deficit it would cause – or the enormous cuts it would require… But the will-o’-the-wisp quality of the Washington conversation is underscored by the fact that when anyone proposed new and temporary spending to boost job growth a couple of months ago the avatars of the conventional wisdom kept asking, “But what about the deficit?” But when Perry proposes his big tax cuts, such questions are nowhere to be heard – except in the 10th paragraph of some news stories. (And that includes Dionne’s own Washington Post’s news reports.)

It is in that sense that it is a hoax, but one that our media fails to call attention to.

But as I have said, while the deficit in the short run, is of secondary importance, while job creation and our infrastructure are of immediate concern, and the two are related, we cannot afford to have only a short-term outlook. The long-term economic future of this country depends on our having the infrastructure to compete. As just one example that has not been discussed, but that is of vital importance is the enlargement of our ports, particularly the port of New Orleans. The Panama Canal is being enlarged to accommodate the larger vessels of the future, but the Port of New Orleans, and our other ports, do not have the capacity to accommodate such vessels. The sooner we address such problems, the better for the future of our economy, and the deficit, which ultimately will be controlled by a robust economy.

But at the same time there is enormous wasteful spending by our government. To the extent that we address such spending, we will reduce our deficit and free up money to do the things that need to be done.

We keep being told that the elephant in the room is entitlement spending and this is true, but in my view this should be addressed, not as a budget issue, but as a sustainability issue.

According to the Social Security Administration (I urge the reader to read this report in full.):

Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided. The long-run financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare. Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.

Both Social Security and Medicare, the two largest federal programs, face substantial cost growth in the upcoming decades due to factors that include population aging as well as the growth in expenditures per beneficiary. Through the mid-2030s, due to the large baby-boom generation entering retirement and lower-birth-rate generations entering employment, population aging is the largest single factor contributing to cost growth in the two programs. Thereafter, the continued rapid growth in health care cost per beneficiary becomes the larger factor.

I intend to discuss this vital issue at length at a future time but allow me to here at least begin a discussion of wasteful spending and I will not attempt to address this in the order of importance, but rather as issues come to my mind. Following this model I address first the so-called Drug War.

I can think of no area where we have done more damage to our economy and to our society than in this area.

The incredible thing is that it should have been obvious from our experience with prohibition. While I am sure that differences between them can be found, the results in the two cases are so parallel that it is an inescapable comparison.

In addition, there is an incredible agreement across the political spectrum on its wrong-headedness. The people who have spoken out against it include: Milton Friedman, the supply side economist, Walter Cronkite, the beloved journalist, George Shultz, Secretary of State in the Reagan Administration, Walter F. Buckley, Jr. founder of the Right Wing National Review, and Jimmy Carter the 39th President of the United States. For the exact quotes from these people, see below. To enlarge for legibility click on it.

Once again, in order to limit the post to a reasonable length, I will defer further discussion to the next post.

Comments on this and other posts are invited and should be sent to es628@columbia.edu.