So, You Want to Reduce the Deficit?
We’ve only begun, before the rising sun,
We fly.
So many roads to choose.
We start out walking and learn to run.
And yes we’ve just begun.
We’ve Only Just Begun - The Carpenters
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Speaker McCarthy wants to get some spending reductions as part of the debt limit extension. Good for him. I hope he is successful. But even if he gets something, it will likely only very slightly slow the growth of the national deficits and debt. Both the current deficits and the total debt level are massive by almost any historical measure. Demographics and existing law suggest that the numbers only get worse from here.
It is easy to talk about reducing deficits. To reduce the debt means that you have to run budget surpluses, which we have only done eight years since 1930. Easy to talk about. Very, very hard to do.
To understand this better, let me break the components of the federal budget into a few simple parts using the terms that the government uses to describe income and expenses.
Revenues: This is all taxes on income, payroll taxes, and all manner of fees and other revenues.
Discretionary non-defense spending: This spending is appropriated annually by Congress for all the departments of the federal government except defense.
Discretionary Defense spending: This is the spending for the department of defense which also needs an annual appropriation from Congress or there is no military.
Entitlement (Mandatory) spending: This includes such things as Social Security, Medicare, Medicaid, Food Stamps, Student Loans and actually over 300 other smaller entitlements. These do not require annual appropriation or authorization. They are in “permanent” law and the spending goes on according to whatever formulas are set in the law.
Interest on the federal debt. You kind of have to pay this if you ever want anyone to buy your debt.
Clear as mud? Welcome to government accounting.
Now, let’s assume you are a typical conservative Republican. You want to reduce non-defense discretionary spending, reform or reduce mandatory spending, and cut taxes. If you are a defense hawk, you want to increase defense discretionary spending. If you are not a defense hawk you want to leave it alone or cut it a little. Do all this and you will reduce the deficit over time and grow the economy with lower taxes.
Easy.
Now, let’s say you are a typical leftist Democrat. You want to increase non-defense discretionary spending and increase taxes on however you define “the rich.” You want to cut defense spending and increase entitlement spending. This may not reduce the deficit but you don’t care. You are a believer in the new religion of “Modern Monetary Theory” (MMT) and deficits don’t matter. The only reason you want to raise taxes is to reduce income inequality and create “equity,” not to reduce deficits. Do all this and you will support your other new religious beliefs (Climate Change, Critical Race Theory and Gender Fluidity just to name a few) and build a fairer society.
Easy.
Do you see any overlap here? No? That’s because there isn’t any. Therein lies the problem. Each side thinks they can get full control of Washington in the next election and then they can implement what they want without interference from the other side. Even if they do that, the other party will often reverse the actions of the other when they get full control.
If you really want to reduce the deficit, the first task is to get agreement that it is important and necessary to do that. Moreover, if you really want commitment, people must agree that the deficit is a major threat if not the major threat to the future of the republic. There is less agreement on that than ever. Most Democrats used to think that the deficit was a problem but their invention of MMT (which this author thinks is snake oil) allows them to ignore it and spend like crazy. And if you are a Republican deficit hawk and think the deficit is a problem, but China’s military is a bigger one, you will likely be willing to sacrifice the deficit for more ships in the navy.
If you could get enough agreement on the severity of the problem, you will have to make a deal with people who see things differently than you do. What are you willing to give up? If you are a defense hawk, are you willing to increase taxes to cover the cost of those new weapons systems? If you want to see entitlement spending preserved or increased, are you willing to cut non-defense discretionary to do that?
Of course, there is waste. It is also easy to say, “just cut out the waste” and the problem is solved. I happen to think that the entire federal department of education is a waste since there are zero federal schools (outside of military bases) and so it is all bureaucracy by definition. And there are about 700,000 non-uniformed employees in the department of defense which is about 1 for every 2 uniformed soldiers, sailors or airmen. But the deficit this year will be roughly 25% of all spending. If you take out defense spending and the direct payments to individuals from Social Security and other entitlements, you would have to eliminate the rest of the government to get to a balanced budget.
Not easy.
So, we should give up? Absolutely not.
Making sure that the deficit doesn’t reach “doom loop” status where it collapses the economy is a long-term project. It will require adopting consistent and thoughtful positions that are communicated over a period of years. Presidential leadership is critical in this effort. Senator Biden once advocated for entitlement reform in order to “save them for future generations.” President Biden now demagogues anyone who proposes even the most modest of reforms. Speaker Ryan had deficit reduction as his personal major policy objective. But President Trump loved debt and spending in his business and was not even close to a fiscal conservative. This was much of the reason for the falling out between Ryan and Trump. Obama fought deficit reduction. George W. Bush had the 9/11 attacks to deal with and got to deficit reduction only in his final two years in office. The last balanced budgets were when President Clinton declared that “the era of big government is over.” Without a president to champion deficit reduction, it is nearly impossible. Hence, we are where we are.
The problem is clear. Solutions are easy on paper, but hard to implement and pass through our system of government. But we must try.
And in the words of the Carpenters, we’ve only just begun.
I remain respectfully,
Congressman John Campbell
Drive fast & live free