StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Does Anyone Really Think Reducing The Deficit Isn't Going To Be Painful?

13 Dec 2011
Posted by Stan Collender

My column from today's Roll Call is the first in a series I will be writing over the next year about what it's really going to take to reduce the federal deficit: It's going to hurt and anyone why says otherwise is misinformed (possible), misleading (probable), or just plain lying (very likely).

Just to be clear: No matter what anyone says or what you want to think, there are and will be no silver bullets or magic elixirs.

Spending cuts will reduce services and what the government buys from someone.  Revenue increases mean that someone will pay more to the government. There will be some winners, but mostly there will be losers

Unless you still believe in the tooth fairly and Santa Claus, stop believing anyone who says this isn't the case.

Pain Has to Be Added to the Budget Debate

Dec. 13, 2011

The most striking thing about the continuing federal budget stalemate (calling it a “debate” would be giving it far too much credit) is that few seem to be willing to accept or even state out loud what should be obvious: Eliminating the deficit will impose some pain on most Americans.

At least in the short term, reducing the deficit will eliminate or reduce popular services provided by the government and require that many or most people pay more in taxes. Along the way it will decrease economic growth and jobs compared to what they otherwise would be.

Unless someone invents a way to increase revenues without anyone paying more or to cut spending without any government services being affected, reducing the deficit absolutely is going to hurt individuals, industries and regions. But the budget fight in Washington won’t get any better anytime soon until this becomes understood and, far more important, accepted.

I’m not sure who is more at fault for what has become a chronic disconnect between the actual effect of what needs to be done to deal with the deficit and what’s being said the effect will be.

Members of Congress clearly bear a good deal of the responsibility for not talking about the material effect their preferred spending cuts and revenue increases will have on their constituents. Typical Members and their challengers routinely take the position that someone else’s taxes should go up or spending important to some other industry, Congressional district, state, department or demographic group should bear the burden. In other words, they say it shouldn’t hurt a bit.

Officials also typically talk enthusiastically about deficit reduction alternatives that allegedly will painlessly fix the budget. Eliminating earmarks, giving the president a line item veto, passing a balanced budget amendment to the Constitution and implementing the constantly-suggested-but-never-successful budget process “reform” are always touted as magic elixirs that will cure what ails us without any broken bones, permanent scars or side effects.

This isn’t really surprising: What elected official or candidate for office wants to tell her or his constituents that what they want done on the budget means they’ll have to do with less or pay more? It’s even less likely someone will say that both — get less and pay more — will be needed even when that’s the reality of the situation.

But anyone who says that Congress and the White House are completely to blame for the continuing disconnect on the budget isn’t reading the tea leaves or, in this case, the polls correctly.

Poll after poll on the budget says that the typical American wants the deficit reduced with spending cuts. The response is almost always overwhelming and the source of a few day’s headlines.

But that supposedly definitive result and those headlines change quickly when those same voters in those same polls are asked to specify the spending they want reduced.

That’s when cuts to foreign aid usually become the only ones preferred by a majority. Not only is support for cutting every other federal activity low, but the results typically show that Americans really want more rather than less of almost everything else the government is doing.

In other words, few are willing or think they should have to bear the pain personally. Instead of less government, they really want big government that’s just as big but costs less.

These poll results are the epitome of the “there must be no pain” mentality that typifies today’s budget stalemate. Foreign aid is seen as benefiting someone else in a galaxy far, far away, so reducing it won’t hurt a bit. And unless you live in Houston or along the East Coast of Florida or work for a contractor, that’s also the reason NASA — which actually has programs for galaxies far, far away — is close to foreign aid in unpopularity.

That’s also why any talk about Washington doing less of almost everything else — from Medicare to transportation to education to the Pentagon — spurs angry rallies at town hall meetings and gets multiple lobbyists hired.

It’s also why proposals such as eliminating “waste, fraud and abuse” that supposedly reduce the deficit without imposing any pain because they don’t specify what is actually wasteful, fraudulent and abusive are such perennial favorites. They promise deficit alchemy — the fiscal equivalent of getting rich by turning less precious metal into gold — that’s backed by just as little science.

This year’s budget stalemate made the situation worse than it has ever been, with even more talk about turning deficit reduction into economic gold. For example, until military contractors realized how much the spending cuts triggered by the anything-but-super committee’s failure would hurt, there was little or no mention about the pain caused by reductions in government spending. Indeed, the talk up to then was about how spending could be cut without it having an effect on jobs, income, profits or gross domestic product growth.

There will be no serious deficit reduction effort until this changes — that is, until there’s a dramatically increased recognition that a serious deficit reduction plan is going to be painful. It will also require that anyone who says otherwise lose their credibility.

Without that, the budget stalemate in Washington will continue, and that will hurt.

Shared sacrifice

Great, another instance of "both sides do it" journalism.

Look, there's already plenty of mentions of pain in the discussion. Just do a search on "shared sacrifice" to see them. Here's the first one in the results. It's the Republicans who refuse to impose any sacrifice on their constituents - the super wealthy. They only want to slash programs for the poor and middle class. Many Democrats - too many as far as I am concerned - are quite willing to cut programs for the poor and middle class as long as they get some tax increases from those who can afford to pay. So I don't see how you can say there's no mention of pain in the public discussion.

The wrong discussion

I don't think anyone would disagree with the statement that reducing the deficit would be hard or that it is necessary. I think the point people are trying to make is that, in the middle of the biggest and most prolonged slowdown since the Depression with lingering and high unemployment, this is exactly the wrong discussion. We should be talking about solving the employment problem first and then the deficit second.

When there are more people on the employment rolls, the deficit can be dealt with and pain borne differently than the "austerity brings growth" doublespeak we keep hearing now. So this article just yet enforces this completely wrong-headed approach to what our problems are, in my opinion.

So stop it already. You're doing the country a great disservice by keeping this charade going. The problem is employment. Keep saying the word "employment" in the mirror until you get it. And vote out anyone in Congress who thinks otherwise.

Absolutely right

This is a great column, and it gets to the heart of the matter. We need to raise taxes. We need to cut spending. And we need to start doing it now. The whole Republican attitude that "We can never raise anybody's taxes ever" is just as wrong-headed as the whole Democratic attitude that "We should reduce the deficit, just not now/until the economy recovers/the sun goes supernova, etc." But no one is willing to take the first step. So we just get useless commissions and reports that are summarily ignored.

The only thing that will force Washington's hand is a debt crisis like the one happening in Europe. As long as we can keep financing deficits at rock-bottom interest rates, Congress and the administration will do nothing. The day the bond vigilantes start walking away from the Treasury market the way they've already abandoned the bond markets in Italy, Spain, Greece, and so on is the day we'll actually see some real progress. Until then, it's more of the same "kick the can down the road" stuff we've been dealing with for the last two years.

That pain is why nothing will

That pain is why nothing will happen until the status quo itself causes more pain than a change to the status quo. We will always choose the easy way out until it is obvious to even a blind squirrel that there is no easy way out.

My guess -- it will occur when foreigners decide they no longer want dollars as a reserve currency and create a interest rate and funding/rollover crisis.

Deficit reduction

I will agree with you that the deficit does need the be taken care of immediately or we will soon have an total economic collapse that will result in chaos and civil unrest. But, the main problem is to much government. We need to start by actually cutting services that the Federal Government has no business being involved in and getting back to a government that focuses on its Constitutional duties which is protecting property and individual rights, and protection from invasion. We could cut a trillion dollars in one year as pointed out by Presidential Candidate Ron Paul by shutting down 5 departments that we do not need or are just unconstitutional. The Department of Education is one of these departments and is just plan useless. The argument for keeping it is that it helps to make sure that underfunded schools get the same type of services as schools in more affluent districts. But this has not happened and it actually had brought down the schools that where doing well prior to 1979 when the Department was formed. In addition the money that the Dept. of Ed uses is taken from the local districts through taxes and then distributed by them after they take their cut for operation expenses. Why not take the middle man out and allow the local school boards handle the issue of funding the schools and deciding on the educational requirements?

It doesn't have to hurt-that

It doesn't have to hurt-that is a moral imperative that is part of the constructed narrative the author has inherited and has nothing to do with how budgeting works or economics. Fix unemployment, raise taxes and fees, cut the deadwood, increase efficiency. Break up the monopolies and market failures, again in some cases like AT&T and banking. This country has needs that aren't being met because private interests are blocking them. The people who have made the mistakes will pay a lot not to be punished, and Obama and Bush have both coddled them.

Just demanding everyone be fed spinach because you think its necessary that everyone eat spinach is not rational or realistic-it is a storyline that our media feeds us on behalf of the wealthy elites, without any consideration for facts or analysis. In the meantime, some people never eat any spinach and don't even pretend to, while others are camping in the woods eating nothing but austerity spinach.

The US can reduce its deficit

The US can reduce its deficit fairly easily because our income taxes are far too low. From 1945 to 1980 income taxes averaged near 12% of GDP. Reagan reduced marginal tax rates so much that they fell close to 9%. Clinton increase them back to 12%; and Bush/Obama reduced them again to 9 %(and below). However, on budget expenses have remained 12%(+/-1%)) of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security trust fund. But, not only can we no longer continue to borrow from the trust funds, we have to start paying money back as beneficiaries start relying on the trust funds. In the short term, we have to raise income taxes to 12%, simply to cover on budget expenses. In the long term, income taxes must rise above 12% in order to pay back the trust funds.

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