July 18, 2011

In the federal debt ceiling debate, both sides are off the mark

Filed under: Uncategorized — Greg in cheeseland @ 6:08 pm

Author’s note:

In the ongoing debate about raising the debt ceiling and cutting federal spending, both sides seem to be missing the point. The point is that most of the U.S. debt has been caused byt he Bush-era tax cuts, defense spending, and financing the wars. Yet domestic spending on social programs, infrastructure and stimulating the economy is being targeted by both parties for cuts. This leades me to believe that neither party is working in the best interests of the American people.


The debate in Washington over raising the federal debt ceiling and how best to slash the federal deficit reveals many details about the competing political and economic ideologies involved. While both sides seem to agree that cutting federal spending on domestic programs is the solution, one major element that is overlooked is that neither side truly represents the interests of working people in America.

As President Obama and Speaker of the House John Boehner appear engaged in a budgetary battle, the Treasury Department is scheduled to run out of borrowing authority on August 2nd unless Congress raises the federal debt ceiling. Both President Obama and Speaker of the House John Boehner agree that Congress needs to see and approve a major deficit reduction plan before it will vote to raise the debt ceiling. They just cannot agree on a plan to present to Congress.

President Obama has offered two different deficit reduction plans. One is designed to achieve a $2 to 3-trillion reduction over ten years and the other a $4 to 5-trillion reduction. The republican plan, of course, focuses on further tax reductions for corporations and the wealthy. The only thing certain about every plan is the relative breakdown between spending cuts and revenue increases – or lack of revenue increases.

The truth may be that most of those who demand deficit reduction primarily through spending cuts have as their real goal a further weakening of the public sector and our social programs even though they claim that their only motivation is to do what is best for job creation. Governor Scott Walker provides a good local example of that.

The basic choices with deficit reduction are seemingly simple: maintain taxes and cut government spending or maintain spending and raise taxes. Cutting public spending pulls money out of the economy, costing jobs. So does raising taxes. The question then becomes: Do we lose more jobs by cutting spending or raising taxes?

According to Martin Hart-Landsberg, Professor of Economics and Director of the Political Economy Program at Lewis and Clark College in Portland, Oregon, “the fact is that almost all studies of the economic impact of changes in government spending and taxes on employment find that changes in government spending have a larger impact on jobs than do tax changes. That means cuts in government spending will cost more jobs than an equivalent increase in taxes. Therefore, if we really care about jobs, deficit reduction efforts should emphasize tax increases over spending reductions.”

Those choices, however, ignore the proverbial one ton elephant perched on the piano in the White House: Defense and war spending. And they also ignore what is in the best interests of working Americans.

Most of the deficit reduction in both plans is to be secured by cutting spending. The spending cuts, however, largely target domestic spending on social programs while ignoring defense spending and the costs of the three ongoing wars, which accounts for about 53 per cent of all federal spending. That is along the lines of the conventional wisdom that the debt crisis is caused by out-of-control social spending and leaves no choice but to make cuts in social programs such as Medicare

The Bush-era tax cuts and the Iraq and Afghanistan wars, including their associated interest costs, account for almost half of the projected public debt in 2019 if current policies are continued (see slide show, Figure 2). Taken together, the economic downturn, the measures enacted to combat it, and the financial rescue legislation play a considerably smaller role in the projected debt increase over the next decade than defense and war spending, the Bush-era tax cuts and the loss of revenue due to the economic downturn.

According to the Center on Budget and Policy Priorities, these three drivers “explain virtually the entire federal budget deficit over the next ten years.” In other words, our debt problems have little to do with runaway social programs. They are caused by specific tax and foreign policies that can be reversed by cutting defense and war spending, changing tax codes, and an economic crisis that can only be overcome through public spending.

The debt ceiling budget battle has done little to clarify the drivers of our rising national debt or encourage a productive national debate over appropriate policy responses.

And sadly enough, both sides in the deficit battle are on the same wrong side as far as responsible policy choices are concerned.

Read more, gets links and charts here: Madison Independent Examiner

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