October 31, 2014

Of Deficits And Denial

In the debates as elsewhere, both Bill Clinton and Bob Dole have repeatedly sworn that the budget must be balanced. Yet neither candidate wants to talk concretely about how they would fulfill their pledge. Meanwhile, back in Washington, neither party can sustain even modest progress toward deficit reduction.

This chronic gap between intention and behavior has all the hallmarks of addition: The media is covering up for politicians by suggesting that the deficit is no longer an urgent problem -- and that, in any case, both parties are still working hard to eradicate it. The media are wrong on both counts, and the cover-up only confirms politicians (and the electorate) in their denial.

One Deficit Won't Kill You

It is true that the federal deficit has declined for the past four years and, according to the CBO, weighed in at just $109 billion in FY 1996, less than 40 percent of its 1992 peak. Good news? Sure. But let's remember that deficits always decline during a cyclical expansion -- and that this time the decline has been assisted by a vast post-Cold War cutback in defense spending.

Unfortunately, the world cannot forever remain as recession-free or as peaceful as it is today. On our current course, even assuming no real-dollar growth in defense, the CBO projects that the deficit will start rising again in 1997 and will more than double over the next six years. Nor can our demographic Indian Summer last forever. Both the CBO and GAO say the deficit will explode when Boomers retire, rising to an economy-shattering 15 to 25 percent of GDP by the year 2025.

To look only at this year's deficit is to miss the point. No one cigarette will give you cancer. No one deficit will ruin the economy. Deficits are a long-term problem: It is the accumulation of all deficits that burdens all future taxpayers and that undermines the nation's capital stock, productivity, and living standards.

Promises, Promises

Although both parties promise a balanced budget, neither party is insisting that America take even the minimal steps required to reach even a temporary budget balance.

To balance the budget in 2002 while cutting taxes, Dole promises large spending reductions above and beyond those called for in the FY 1997 budget resolution, approved in June by the GOP Congress. But since then, the GOP has chucked even its own resolution. Apart from welfare reform, the party leaders gave up on the resolution's central (Medicare and Medicaid) entitlement savings. They then adjourned after agreeing to a FY 1997 discretionary budget that exceeds the resolution's target. And even this target was modest: The resolution's 1997 savings amounted to a mere 4 percent of the total savings required over the entire six-year plan.

The Democrats' promises are even emptier. The primary reason the GOP gave up on entitlements this year was the Democrats' shameless and dishonest "Mediscare" campaign. As for discretionary spending, the White House did meet its target for 1997 -- but only because its budget-balance plan is even more back-ended than the GOP's. The White House says it will stay the course. But if so, why hasn't a single agency submitted to OMB any plan to keep outlays within the administration's proposed long-term spending targets?

Addiction and Common Sense

Sometimes what happens in our political system seems so unreal that one gropes for a metaphor. Imagine a gathering of alcoholics where everyone resolves to quit drinking six years from today -- with most of the cutting back to occur in year five and six. They then celebrate the decision by breaking out a keg.

Common sense tells us that lasting budget balance is best enacted now -- when few Americans need sacrifice much in the near term and when all Americans have time to adjust in the long term. Common sense also tells us not to wait until we must resort to draconian fiscal triage in the shadow of economic crisis -- or of political and generational upheaval. The real challenge is: How do we get addicts to listen to common sense?

 

FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips