Bogus Deficit Solutions

As the federal debt climbs toward an ill-defined event horizon where the dollar crashes and basic services are shut down, voters face a cacophony of conflicting and scary predictions. Pres. Obama has threatened to withhold Social Security checks, as if Social Security is the lowest priority for the $4.1 trillion in revenues Washington hopes to receive this year. Washington is expected to burn through $1.4 trillion more than it collects this year, which is clearly a disaster. Still, should Obama take the entire blame?

To state the obvious, the deficit is the difference between federal revenues and outlays. Contrary to Pres. Obama’s carping about millionaire jet setters, the revenue side of this equation has resolved itself. Tax revenues peaked under Pres. Bush at $4.2 trillion ($450 bln deficit that year), but they have already recovered to $4.1 trillion. Falling revenues caused close to half of the deficit in 2009 and 2010, but they are no longer a problem.

What about Obama’s wasteful stimulus programs? Between the recovery stimulus, the housing stimuli, the auto bailouts, and the Fannie / Freddy bailouts, Obama has wasted well over $1 trillion. Still, that money is spread out over at least three years, and is mostly behind us. It cannot account for this year’s $1.4 trillion deficit.

Federal spending has been on autopilot for some time, and Obama’s spending increases are nothing extraordinary.

Federal Spending 2000 – 2011

source: Wolfram Alpha

The chart shows the impact of Obama’s stimulus, but spending has since returned to its historical growth rate. Likewise, the promised spending cuts negotiated the last time Obama and Congress butted heads are nowhere to be found.

The reality of the US’s budget problem is that the Federal Government is a beast with no master. Obama and Congress are only servants to an economic and political force that wants to grow. Most Congressmen owe their careers to some part of the federal beast, and no majority can form to pass even the smallest reforms. While Rep. Pelosi’s recent call for no cuts whatsoever sounds radical, that is basically the sentiment of every Congress for the past 90 years.

Obama’s calls for millionaires (read those who earn $150K) to pay their fair share are of course bogus, but so are Herman Cain’s calls to ‘cut the fat.’ Reforming obvious government waste cannot close a $1.4 trillion gap. Eliminating the Departments of Education, Commerce, Interior, Labor, NSF, Community Service, SBA, and Energy would only save $90 bln.

The debt limit impasse presents two stark and unpleasant choices: 1. The US can become a European socialist state with its current level of government services, but with high taxes, low growth, and a permanent underclass of the unemployed; or 2. The US must seriously rethink its big ticket programs: Welfare ($571 bln) , Social Security ($695 bln), Medicare ($453 bln), and Medicaid ($290 bln), and the military ($695 bln). To listen to Washington, simply freezing these budget items would bring about the apocalypse. Even if the budget were held to inflation it would take 21 years at the current GDP growth rate of 1.5% to balance the budget.

Is Obama to blame for this mess? No, but like all Washington insiders, he is opposed to any real solution. False compromises of tax increases and fantastical far off budget cuts cannot solve the US’s serious troubles. Real solutions like a balanced budget amendment, or simply letting the US hit its debt ceiling sound radical, but every moderate method has already failed. Beltway thinking is the road to disaster, which is something to remember when a GOP moderate asks for your vote.