How to Spot a Deficit Peacock
How to Spot a Deficit Peacock
Four Ways to Tell When Someone Isn't Serious About the Deficit
Use these simple tests to find out if someone is really interested in reducing the deficit or just wants to score political points.
President Barack Obama will release his fiscal year 2011 budget proposal on Monday, February 1, and the fiscal future it projects is sure to be troubling. It is very likely that the budget will show substantial deficits throughout the next decade, even with any newly proposed deficit reduction measures. It is also very likely that the release of these projections will set off another chorus of concerned pundits and lawmakers who will loudly insist that they are true deficit hawks and want to reduce the deficit.
Deficit hawks come in a variety of breeds. There are those who believe that the long-term deficits pose serious risks, but that short-term deficits are necessary and wise during a recession. There are those who believe that deficits are always risky and should be avoided at all costs. Both kinds of hawks are genuine in their concern over our nation’s finances and are sincerely committed to working toward a more sustainable federal budget.
And then there is another species of deficit bird all together: the deficit peacock. Deficit peacocks like to preen and call attention to themselves, but are not sincerely interested in taking the difficult but necessary steps toward a balanced budget. Peacocks prefer scoring political points to solving problems.
How can you tell the difference between deficit hawks, those who are serious about the dangers posed by persistent, large deficits and deficit peacocks, those who only use those dangers to preen and score political points? It’s actually fairly simple. Here are four easy ways to tell when someone isn’t taking our budget problems seriously.
1. They never mention revenues.
There are two sides to every balance sheet, and the federal budget is no exception. Deficits occur when spending is too high, but they also happen when revenue levels are too low. The budget deficit in FY 2009 was a whopping 9.9 percent of GDP, the highest it has been since World War II. And that enormous deficit was caused as much by a dramatic decline in tax revenues as it was by an increase in spending. In fact, the size of the revenue decline was four times larger than all of the new spending initiatives started since President Obama took office. Tax revenues in 2009 were at their lowest levels since 1950. When revenues decline by 17 percent, as they did last year, deficits skyrocket.
Increasing revenues is going to have to be part of the solution for meeting the fiscal challenge. Any suggestion that we can solve this problem solely by cutting spending reveals an utter misunderstanding or ignorance of the budget numbers. Balancing the budget without raising any additional revenue 10 years from now would require cutting every program in the entire budget by more than 25 percent, including all defense spending, Social Security and Medicare benefits, air-traffic-control funding, veterans’ benefits, aid to schools, job training programs, agriculture subsidies, highway maintenance, and everything else.
Of course, those who argue that we can balance the budget simply by reducing spending often oppose any attempt to reduce funding in certain parts of the budget. If we tried to balance the budget without raising additional revenue, and without reducing spending on Medicare, for example, then the rest of the budget would have to be slashed by a third.
So the next time you hear someone railing against the size of the deficit and saying that all we need to do is cut government spending, that means he is either in favor of massive cuts to Social Security, Medicare, and everything else, or else he is just posturing. Being sincerely in favor of balancing the budget necessitates being in favor of raising more revenue.
2. They offer easy answers.
Beware anyone offering easy answers. We face a very large budget gap over the coming decade, and the scale of the problem is such that no one solution is going to solve it all. It is going to take a mix of increased revenues, spending reductions, and improved government efficiency to get our fiscal house in order. Those who claim that we could get the budget back to sustainability if we only cut out earmarks, or say that the solution is to simply freeze discretionary spending, are just peddling fiscal snake oil.
The budget deficit is likely to average about $900 billion per year over the next five years. Even by the most expansive definition of “pork-barrel spending,” earmarks amount to less than $20 billion a year. Eliminating them all would reduce the deficit by less than 3 percent. The federal government is certainly going to have to do a better job of spending each dollar wisely and diligently seek ways to improve efficiency across the board. But earmarks are actually a vanishingly small drain on our nation’s overall finances, and eliminating them will not even get us one-twentieth of the way to balance.
Freezing discretionary spending, the spending that Congress reappropriates every year, at current levels will similarly yield only very small budgetary savings. The federal government spent a bit more than $625 billion on non-defense discretionary programs in 2009. The Congressional Budget Office projects that, in five years, the federal government will spend about $660 billion on the same programs. Freezing non-defense discretionary spending at current levels would therefore only produce a total savings of $35 billion in 2015. That year, the budget deficit is expected to be around $760 billion. Saving $35 billion would solve less than 5 percent of the problem. There may be some savings to be found in non-defense discretionary programs, but a spending freeze would accomplish extremely little in the way of measurable deficit reduction.
There are no easy answers to our budgetary challenges. We have an aging population, rising health care costs, and a tax code full of loopholes, exceptions, and targeted subsidies. It is going to take more than simple solutions to meet these challenges. If you hear the words, “all we have to do to balance the budget is…” then you know whoever spoke them hasn’t fully grasped the scope of the problem.
3. They support policies that make the long-term deficit problem worse.
This one seems like it should be obvious, but you might be surprised by the number of people who now claim to be concerned about our fiscal future even though they recently supported massive budget-busting legislation. Congress voted repeatedly over the past eight years to make huge tax cuts and create new spending programs without offsetting any of those costs. Many of the very same members of Congress who voted for those policies are now loudly urging the president to clean up the mess that they themselves made.
To make matters worse, there are those who are still supporting new deficit-exploding policies while simultaneously professing grave unease over our fiscal path. For example, there are 34 senators who have co-sponsored recent legislation offered by Senators Conrad and Gregg to “create a bipartisan fiscal task force to address the nation’s long-term budget crisis.” Strange, then, that 25 of them recently voted to slash the estate tax so that the 3,000 richest families in the country can get another tax cut, a policy which would increase the deficit by $100 billion over 10 years. When someone supports a deficit commission one day and votes to use another $100 billion of red ink on tax cuts for the rich the next, it is perhaps an indication that his or her commitment to real deficit reduction leaves something to be desired.
4. They think our budget woes appeared suddenly in January 2009.
President Bush inherited a record budget surplus when he took office. Yet he managed to turn that surplus into a massive deficit after repeatedly cutting taxes while prosecuting two wars and enacting billions of dollars worth of new spending programs without paying for any of them. By the time President Obama took office in January 2009, the Congressional Budget Office was projecting a budget deficit of $1.2 trillion for the year. The dramatic decline from record surplus to record deficit under President Bush resulted in a nearly $3 trillion increase in publicly held debt, the largest debt expansion in American history.
Not only did President Obama inherit the least balanced balance sheet in 60 years, he also took office in the midst of the deepest, most dangerous recession since the Great Depression. Running a large budget deficit is both necessary and wise during a recession. The extra spending and reduced taxes that produce big budget deficits help counter the downward recessionary spiral and blunt its negative effects. Yet eight years of fiscal damage left the country in a much weaker position from which to respond to the economic conditions, and left President Obama with far less fiscal room to maneuver.
In fact, the incredible budgetary decline that took place under President Bush is responsible for far more of our current deficit troubles than any new initiative taken under President Obama. More than 50 percent of 2009’s huge deficit can be directly attributed to policies enacted by the previous administration, and that is not counting the 20 percent that was due to the economic disaster that began and gathered its momentum on President Bush’s watch. President Obama’s efforts to rescue the economy, on the other hand, are responsible for only 16 percent. Much more importantly, the long-term fiscal damage done by the Bush administration absolutely dwarfs any lasting effects of the temporary economic recovery measures taken under President Obama. The Bush-era tax cuts alone will add more than $5 trillion to the budget deficit over the next 10 years.
There is no question that our current budget deficit is much too large to be sustained over the long run, but to ascribe all of its considerable bulk to President Obama is to deliberately ignore the miserable fiscal legacy of his predecessor. It may be inconvenient for conservative critics of the president’s economic policies to admit that it was their approach that got us into this mess, but it remains true that we are all still suffering the effects of their fiscal legacy.
There are people from all parts of the political spectrum who strongly and sincerely believe that our current budget path is unsustainable and are committed to taking concrete steps to put the country on a better path. But there are also many who are only interested in scoring political points or in getting in the way of progress on this issue. Sometimes it can be difficult to distinguish between the two. Now, all you need to do to tell the former from the latter is apply any of these four handy tests. Do they only focus only on spending cuts, with nary a word about revenues? Do they offer easy answers and simple solutions? Are they in favor of actions that would actually exacerbate the problem? Do they blame all our woes on President Obama and neglect to even mention the previous eight years? If any of the answers are “yes,” then you’ve identified a deficit peacock.
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