Responsibly Confront the National Deficit

Chuck Sheketoff

Now that the gavel has come down on the 2011 Oregon legislative session, Oregonians striving to revive the American Dream must now turn their focus to Washington, D.C. Congress is mulling policies that will have a decisive impact on whether our nation will rebuild and expand the middle class — or whether insecurity and poverty will deepen and widen.

Among the most pressing questions is whether Congress and the White House will confront the nation’s deficit in a responsible way.

The Hatfield lesson

Oregon's legendary Mark Hatfield recognized 16 years ago that amending the U.S. Constitution to require a balanced budget was nothing more than a dangerous “gimmick.” He put principle ahead of politics as the lone Republican voting against a balanced budget amendment proposal floated as part of the Contract with America. The whole nation took note as it proved to be the deciding "no" vote.

Our delegation today needs to remember Hatfield’s heroic vote as they consider the current congressional Republican proposal to enact a balanced budget amendment.

As OCPP recently commented, a balanced budget amendment would sew into the Constitution an economic straitjacket that would leave our nation largely helpless in fighting recessions. Why?

Because in a recession, consumers and businesses cut back their spending out of necessity or fear, stunting economic activity. The only entity with the ability to stimulate the economy is the federal government . . . unless a balanced budget shackles its ability to spend.

And because tax collections plummet during a recession, balancing the nation’s budget would require Congress to slash spending, raise taxes or both — just when the economy is weak. Deep spending cuts in a recession are the exact opposite of what good economic policy would advise. The result would be deeper and longer recessions, greater unemployment and more misery for the American people.

Worse, the current balanced budget amendment legislation is more dangerous than previous versions, containing two destructive provisions:

First, it would require a two-thirds majority vote to raise taxes, which would make it exceedingly difficult to raise revenue to balance the budget, leaving spending cuts as the only practical option.

Second, the bill would cap annual federal spending at 18 percent of the Gross Domestic Product starting in 2018 — an arbitrary level that would force draconian cuts to the programs that nurture the middle class and protect vulnerable Americans.

Spending caps are astonishingly bad

The misguided idea of imposing a spending cap has surfaced in other ways. Indeed, some in Congress have conditioned their support for raising the debt limit on the enactment of a cap on total federal spending.

Like a balanced budget amendment, a cap on federal spending “is an astonishingly bad idea” that would “prolong and deepen recessions and deny essential public services to those in need,” according to the Center for American Progress.

First, draw a “Circle of Protection,” again

By slashing those services that nurture the middle class and protect the vulnerable, the balanced budget amendment and spending cap proposals would exacerbate poverty — a grave departure from previous, bipartisan deficit-reduction compromises, which have made sure that such efforts do not increase poverty. That's the message that leaders of prominent national religious, civil rights, charitable, economic research, and low-income advocacy organizations have delivered to Congress and the White House. They have asked lawmakers to draw a "Circle of Protection" around programs that meet the basic needs of low-income people.

There are responsible ways of addressing the nation’s deficits without exacerbating poverty and inflicting such pain on America’s beleaguered middle class.

Then, turn to taxes

The responsible approach begins by undoing a key driver of the increasing deficits: the Bush-era tax cuts. Simply letting those tax cuts — which have disproportionately benefited the nation’s wealthiest households — expire as scheduled by the end of 2012 would halt the rise in the deficit over the next decade. Congress should then build on the accomplishments of the Affordable Care Act to address the other primary deficit-driver, the spiraling costs of health care.

These decisions will greatly affect the future well-being of Oregonians, so it’s vitally important that we demand of our congressional delegation to address the national deficit in a responsible way.

Comments

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    The current debate over the debt limit demonstrates the problem with hard caps. They allow a minority to hold the nation's economy hostage, demanding unlimited political concessions in return for what should be a pro forma vote (budget battles should be fought over budget bills).

    I frequently lean right in my postings here, but the reason I vote left is stuff like this.

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      Budget battles should be fought over budget bills.

      Yes. This. Exactly. Instead, we get these godawful ideologic hostage-taking exercises that the minority knows full well puts pressure to concede on the majority because they're messing around with the economy.

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    Hatfield was amazing, and there are many lessons we could learn from his inspiring career. He would often be the only vote- or one of a handful- against Reagan's ludicrous defense budgets during the 80s that we are still paying for. You can find the texts of his speeches on this subject during that time online- read them, they're amazing. Often being a very lonely vote against Reagan's war machine funding, he would be thanked by such Democratic Senators like Ted Kennedy, who told Hatfield that he was able to make the vote that they were politically unable to.

    As evidenced by his principled stance against a Balanced Budget amendment- why should the governments hands be tied when facing any crisis, whether military or economic- it is clear that he is the last of the Republican statesmen, and it is doubtful we will ever see a Republican politician of his ilk ever again. To really get an understanding of why the Republican Party would no longer be a safe haven for Hatifeld- or Nixon or, indeed, Reagan who continually raised both taxes and the debt ceiling throughout his two terms- I would recommend to check out the writings of Jacob Hacker and Paul Pierson.

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    In the wake of the past 30 years, it is difficult for me to understand how anyone can be against a balanced budget amendment. Ideally we could have a government with the foresight to save in good times and to spend in bad times, but we don't. DeFazio speaks very eloquently about this issue. If we implemented a balanced budget amendment 20 years ago we likely would not have had the Bush tax cuts (certainly not extended by Obama), the wars in Afghanistan or Iraq, and we'd have no national debt. I'd take that!

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      If we implemented a balanced budget amendment 20 years ago we likely would not have had the Bush tax cuts (certainly not extended by Obama), the wars in Afghanistan or Iraq, and we'd have no national debt.

      Yes, pigs would be flying, as well as providing material for silk purses.

      Perhaps some of that would have happened, and the national debt might be less than it is now, but it almost certainly wouldn't be zero, since you're assuming we'd have somehow managed to pay the existing debt off in 20 years.

      I doubt a BBA would have prevented either war--I'm sure that a way would have been found to make them happen.

      And we likely would have still had an economic crisis that required significant deficit spending to avoid another great depression.

      Would you take that, too?

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        In 1991 (20 years ago), we had a debt of $3.6 trillion. Plus in 2000, we had budget surpluses of $230 billion. With a BBA, I think we can safely say that if the national debt had not been paid off by 2011, it would have come very close. To compare this to pigs flying is hyperbole.

        You write, "I doubt a BBA would have prevented either war--I'm sure that a way would have been found to make them happen." Huh? Based on what? A BBA is, by definition, a part of the Constitution, and presumably not one of those fuzzy parts that can be interpreted in various ways. The federal government cannot go into the red for anything. The only way I see us still fighting those wars is by the government raising revenue. While I do not support this, it is preferrable to fighting the wars on our credit card.

        A BBA would have so changed Washington that it is impossible to say if we would have experienced the housing bubble/economic downturn 20 years later. Even if we did though, I don't think the economic stimulus (40% tax cuts) was effective enough to merit a $16 trillion debt. Your argument places no risk exposure associated with our debt. What kind of depression do you think we will experienced if we default on our debt? Or the world overnight loses confidence in the dollar? Or our pushers stop lending money?

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          "Plus in 2000, we had budget surpluses of $230 billion."

          Really? What's your source for that information?

          I went to the TreasuryDirect website, which provides direct government information (http://www.treasurydirect.gov/NP/NPGateway).

          The daily numbers jump around quite a bit, so I averaged the January 2000 and January 2001 figures, and it's more like a $5.7 billion surplus. You're only off by a factor of about 40.

          I'd say the pigs flying comparison is looking pretty good.

          By the way, in 1999, again, using a January-January average, there was a $121 billion deficit, so the 2000 surplus was minor.

          "A BBA is, by definition, a part of the Constitution, and presumably not one of those fuzzy parts that can be interpreted in various ways."

          Okay, try this on for size:

          Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

          Okay, it says "no law...abridging the freedom of speech", but try shouting "fire" in a crowded theater. It's always subject to interpretation.

          The two wars were done largely off the books as it is. I'm sure a little more slight-of-hand and the BBA could easily be side-stepped.

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            Not sure where I got the $230 billion dollar figure. Bloomberg has the number at $123 billion. By their measure, you are off by a factor of 20. It doesn't matter though. When we get into the weeds like this, we miss the overall point. Let's operate under the assumption there was no budget surplus in 2001 or in any of the years from 1991 to 2011, and for 20 years we paid none of it off. The debt would have remained at roughly $3.6 trillion (plus interest). That is worst case scenario with a BBA, and I think we can all agree that is much better than where it currently sits (more than $14.3 trillion).

            It is of course possible that we still would have gone into two wars with no plan to pay for it, but will you at least admit that such a scenario is much less likely with a BBA in place? There are of course no guarantees, but this would be a significant deterrent to going to war and/or doing it with no plan to pay for it. I think a strongly worded BBA would have prevented these two wars occurring or at least not being paid for. Your argument seems to be saying that any clause in the Constitution can easily be turned on its head to achieve a political victory. That is easier said than done. While infringements on the 1st Amendment are possible, courts' interpretation of those infringements have been strict.

            I do agree spending caps are bad, but there is one major point that you and Mr. Sheketoff do not address. What do you do with a government too undisciplined to observe the other half of Keynsianism? Spending in bad times only works if you save and/or pay off debt in good times. Our government has consistently shown it cannot or will not do this. The next best thing, therefore, is to implement a BBA (which operates as a spending cap). This will likely mean recessions go on longer than we'd like, but it also guarantees the long-term solvency of our problems. If the US eventually defaults on our debt, your arguments of our recession being prolonged will seem quaint.

            Finally, a BBA does not necessarily prevent spending beyond our immediate means. It just means planning ahead. We could put money aside in good times to pay for bad times. We just could no longer extend credit to ourselves. What is your problem with this? Seems very reasonable to me.

            Maybe a compromise could be struck here. Maybe Republicans could give Dems a true stimulus (e.g., public works programs) and we give Repubs the BBA. That would make my year.

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              "Not sure where I got the $230 billion dollar figure. Bloomberg has the number at $123 billion. By their measure, you are off by a factor of 20."

              I used a primary source, which I've linked to, you're relying on a secondary source with no links.

              "When we get into the weeds like this, we miss the overall point."

              It's not the weeds when I'm showing that the basis of your argument is faulty.

              You believe we could have been in a position to have payed off all or most of the national debt in ten years, but I showed that the surplus would have been paid off in something more like a thousand years.

              Again, pigs flying, silk purses.

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                For the sake of argument I conceded none of the debt would be paid off. Fine. But that puts us at $3.6 trillion vs. 14.3 trillion. Does this difference not matter? Does this difference not threaten our economic security just as much (if not more!) than our ability to deficit spend during recessions?

                It is the weeds b/c by focusing on points I have already conceded (for the sake of argument), you avoid my main points: (1) as mentioned above, economic security is threatened as much or more by a $14.3 trillion debt than not being able to deficit spend, and (2) a BBA does not even prevent deficit spending. It just requires planning in advance.

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              "It is of course possible that we still would have gone into two wars with no plan to pay for it, but will you at least admit that such a scenario is much less likely with a BBA in place?"

              No, because that's pure conjecture.

              They cooked the evidence in making the case for war, I'm sure they would have cooked the books, too.

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    Or, conversely, we could've had the Bush tax cuts, Afghanistan & Iran wars, and spending slashed to the social safety net- as they are trying to do now, after the fact- so that we would fit the requirements of a balanced budget amendment.

    Basically, a balanced budget amendment is a cover to allow never-ending tax cuts and slashed spending on government services, all but guaranteed an entrenched impoverished class- even more-so to the degree that we currently have!

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    According to the CBO the responsible thing is to do nothing, and the deficit will disappear. Let the Bush tax cuts expire,Clinton tax rates reappear and we balance the budget. http://thinkprogress.org/economy/2011/06/23/252004/cbo-deficit-do-nothing/

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    Fascinating ... perhaps you'd care to expand on this little bit of dis-proven cr*p: "Because in a recession, consumers and businesses cut back their spending out of necessity or fear, stunting economic activity. The only entity with the ability to stimulate the economy is the federal government . . . unless a balanced budget shackles its ability to spend."

    Only jacks buy Keynes anymore ... sorry dude.

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    I agree with Geoff but honestly there is so much wrong with every section of this post I almost do not know where to begin....

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    Geoff, perhaps it's better put this way: "Because in a recession, consumers and businesses cut back their spending out of necessity...a necessity imposed by reduced consumer activity at the storefront and an increasingly tough credit market.

    In actuality, large corporations could stimulate economic growth, but low taxes provide incentive for them to sit on their assets - est. at around 2+ trillion sitting idly - rather than spend them (and deduct them) with workforce increases. The excuse promoted for their inactivity is that THEY are fearful of the future economy. Indeed, it is precisely these mega corps, along with their pals in DC who continue to promote the virtues of austerity, who are standing in the way of economic recovery.

    Deficit spending and the ballooning National Debt should be addressed - I opined this a number of years ago in the midst of the Bush spending frenzy. But at this juncture, with 10's of millions of Americans unemployed/underemployed, deficit reduction should take a back burner to stimulated economic recovery... and yes, the government should be spearheading a powerful stimulus package.

    The economic death spiral is a direct result of Trickle Down/Supply Side/Milton Friedman economics in combination with the unchecked wild spending in the Bush Admin.

    Simply following an austere model (i.e. Friedman policy in place; just close the checkbook) will do nothing for the American that's out of a job. Oh, yeah, those big businesses that are the job creators -- Just how much of a tax cut do they need to move that 2 trillion??

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