The ongoing battle to reduce the United States' enormous federal budget deficit (roughly $1.3 trillion in this fiscal year alone) represents a shameful public policy failure and illuminates the depressing inability of policymakers Republicans and Democrats alike to honestly address the significant challenges facing our nation. The debate has thus far been pockmarked with disinformation, and neither side has yet to propose a plan to seriously tackle the root causes of our budget problems. If President Obama and Congressional Republicans have no intention of doing what's necessary to resolve the long-term budget crisis, then they should abandon their efforts to enact insignificant and harmful spending cuts in the short term.
In contrast to the false narrative being peddled by Washington insiders and members of the mainstream media, we do not face a budget crisis in the short term, but rather in the mid-to-long term. We are in no danger of losing the ability to finance our government or service our debt in the next two decades. The turmoil in other parts of the world, particularly in Europe and the Middle East, has allowed the United States to continue to be seen as a safe and stable haven for foreign investment, and our debt-to-GDP ratio isn't quite panic-worthy yet. Rather, the problem we face is that, according to financial forecasting tools and accounting methods, the deficit numbers we're running now will both grow and become unsustainable in the long term.
Thus, we are not currently in a situation where we need to impose a dramatic, Ireland-style fiscal austerity program. What we do need, however, is to address the structural causes of our long-term deficit and create a sustainable budget situation that will not hamstring future presidents, Congresses and our economy.
Rather than pursuing such a program, however, lawmakers have focused on making political hay with insignificant cuts that neither seriously reduce the projected deficit nor address any of its structural causes. Obama's proposed budget will only eliminate about one-fifth of projected shortfall over the next decade, while the Republican plan will only eliminate roughly two-fifths. Neither side has proposed any restructuring to Medicare or Medicaid by far the biggest structural causes of the deficit and the Republican plan achieves its spending cuts mostly by eliminating helpful programs despised by the GOP base, such as funding for the Corporation for Public Broadcasting, Planned Parenthood and Obama's infrastructure-renewal investments. The Republican cuts are further offset by the huge tax breaks for the wealthy they wormed out of the Senate last December, which cancels out $36 billion of their cuts this year alone. Both sides have talked openly of cutting social security benefits, even though the program is solvent for at least the next 25 years.
There is little to no upside to making such piecemeal cuts, and they can even be potentially harmful. The Republican plan, for instance, would destroy 700,000 jobs in the next two years, potentially stunting our fragile recovery. If the economy remains weak, federal revenues will come in at lower-than-projected rates, which may either offset the spending cuts or end up adding to the deficit. Adopting either plan would incur these risks with little relative reduction of the long-term deficit and without creating a more sustainable spending system.
In a sad and somewhat perverse way, it's actually better to do nothing about the current deficit than to adopt either the President's or the House's spending proposals. Only enormous cuts can produce enough long-term economic benefit to offset the associated short-term loss of growth, and only a fundamental restructuring of federal entitlement programs can solve this problem once and for all. Letting the problem get worse might, depressingly, be the only way to spur policymakers into making the sort of sweeping, politically-unpopular changes that are desperately needed. Capping the percentage growth of Medicare expenditures to the rate of GDP growth plus 1 percent would eliminate more than one-third of the projected 2030 annual deficit overnight, but that would require taking on the powerful AARP and risking voter backlash from seniors.
Until Washington is willing to seriously consider such measures, however, they should not be making cuts just to give the impression that they're doing something. Spending cuts are painful and have consequences, and are only appropriate as part of a package that makes significant progress in federal financial reform. Anything less is just useless and possibly harmful political theater.
