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What Washington gets wrong about the deficit

First Published Nov 06 2013 10:15AM      Last Updated Nov 06 2013 10:15 am

Politicians talk about the deficit a lot, but experts on the federal budget say they often miss the point.

Republicans typically argue that new government programs will increase the deficit, while Democrats, playing defense, counter that their proposals on immigration and health care will actually reduce it.

But while the deficit has become a kind of code word for fights over the size of government, budget experts say the real problem is basic math that neither side is willing to discuss.

"It’s kind of like the weather: You know everybody talks about it and nobody does anything about it," said Robert Bixby, the executive director of the Concord Coalition, a bipartisan nonprofit that focuses on the budget.



The deficit is a calculation of how much the federal government spends each year that isn’t covered by revenue. It can be reduced by trimming government programs, for sure, but also by raising taxes or — and this part is often overlooked — growing the economy.

In fact, during a recession, many mainstream economists recommend that the government run a deficit in order to put more money into the economy.

Roger Hickey, co-director of the liberal watchdog Campaign for America’s Future, says that’s what happened the first three years after the recession hit in 2007. But as it rose, he argued elected officials started talking more about their concern with the rising deficit than jobs or the economy, which he said are better indicators of the country’s financial state.

"The politics of the deficit started to trump the reality that most Americans were feeling, which is ‘Hey, we don’t have any jobs,’" he said.

In August of 2011, the deficit was a key point in a budget standoff that concluded with a compromise neither side wanted: across-the-board spending cuts on discretionary government programs, known as the sequester, that took place when Washington couldn’t agree to a long-term budget deal.

Now the deficit is dropping. That deal plus the end of some recession-era tax breaks have led to a projected $640 billion deficit for 2013, down from a high of $1.4 billion in 2009 — though still higher than the $460 billion deficit from 2008 before the recession hit in full force.

So, in a roundabout way, politicians have accomplished their goals of decreasing the deficit. And that new reality is actually undermining some of the latest round of budget negotiations, which last until January, said William Galston, a senior fellow at the Brookings Institution think tank and former top aide in the Clinton administration.

"When the budget facts change, there’s a big shift in emphasis within the political system," he said.

Galston pointed to House Budget Chairman Paul Ryan, R-Wis., who has "much more modest" expectations for how much to cut in the budget compared to what his committee passed six months ago, as an example.

But there is something Galston and other experts say the bipartisan budget conference could focus on that would actually make a real impact on the nation’s fiscal health: America’s debt, which currently stands at $17 trillion and is expected to be equal to about 100 percent of the economy by 2038.

The national debt has a much more widespread impact on the American economy than the deficit: It affects our interest rates, our taxes, the value of our dollar and our diplomacy with countries that hold some of our debt.

Unfortunately, a real discussion of long-term solutions to solve the debt probably won’t happen anytime soon, experts say. Like the deficit, the debt isn’t rising because of actions Congress is taking now. It’s entrenched in tax cuts Republicans champion and entitlement programs like Social Security, Medicare and Medicaid that Democrats treasure.

The nonpartisan Congressional Budget Office projects that as baby boomers retire, the number of people claiming entitlements is going to balloon, taking the debt up with it.

"It’s not because Congress is spending like drunken sailors or something," Bixby of the Concord Coalition said. "It’s because there are going to be a lot more beneficiaries."

 

 

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