Friday, May 20, 2011

Budget Madness

Since Presidents Bush and Obama came into office, the budget deficit has gone from the Clinton years of consistent surpluses to massive budget deficits, with the deficit for this year being the second-largest one in US history. Eliminating the deficit has been a problem for decades in the US and both Republicans and Democrats have legitimate arguments concerning this issue. The budget problem cannot currently be solved because not only is there an argument over the causes of the deficit, but other past attempts have failed to solve the problem, and Congressman Paul Ryan's budget proposal is quite flawed.

When it comes to the budget deficit, there are two main schools thought. Either the deficit is due to a revenue problem or the deficit is due to a spending problem. On the revenue side, Mickey Hepner, a Dean at University of Central Oklahoma, recently argued that a decline in revenues played a factor in the worsening budget crisis. "[I]n 2010 federal revenues were as far below their historical averages as federal spending has been above it," [1] meaning that the US government lost out on $1.5 trillion in taxes. While that money would not have fully eliminated the deficit, it would have made it slightly more manageable. The revenue argument has been proven in the past as can be seen by Reagan's massive 1981 tax cuts. In later years he was forced to raise taxes six times to try and cover the damage that was done, yet the US debt still tripled. [2] Under President Bush, the "Center on Budget and Policy Priorities found that the Bush tax cuts accounted for almost half of the mushrooming deficits during his tenure." [3]

While this argument has a point, those that argue that government spending is a main cause of the deficit also have a compelling argument. Marketwatch states that while federal spending has outstripped revenue, taxing the wealthy will not work.

Given that we had a deficit of $1.3 trillion even after taking in $899 billion in total  income tax revenues, does anyone in his or her right mind think raising income taxes on everyone or 'raising taxes on the rich' would solve the problem?  We would have to see income tax revenues from everyone go up by more than a double. That is, with a $1.3 trillion deficit for 2010, we would need an extra $1.3 trillion in income tax revenues on top of the $899 billion we got in 2010. That is not going to happen. [4]

Taxing the wealthy alone will obviously not work. Taxes may also have to be raised on the middle class. A recent US News article stated that "an IRS analysis tells us that 45 percent of Americans will pay no federal income taxes for 2010." [5] There is much talk of 'shared sacrifice' yet the wealthy and the 45% of Americans who will pay no income tax for 2010 will only contribute to the deficit and the middle class may very well have to bear the burden. The deficit will have to be cleared via a series of tax increases on everyone, but especially the top 1%, as well as with budget cuts
The main problem with the US government as related to solving the deficit is that they have proven themselves incapable of doing so due to the consistent ineptitude on the part of both Democrats and Republicans. In the recent past there were two major movements to end the deficit, yet both failed- one due to its unconstitutionality and the other due to both parties abandoning it.

The first major push for fiscal responsibility was in the 1980s with the Gramm-Rudmann-Hollings (GRH) bill. Its purpose was to create "a series of deficit targets meant to balance the federal budget by 1991" and if the "targets were not met, a series of across-the-board spending cuts (sequestration) would automatically ensue. [6] The bill was jointly sponsored by Senator Phil Gramm (R-TX), Senator Warran Rudman (R-NH), and Senator Ernest Hollings (D-SC).

The reason that the GRH bill was proposed was due to the fact that in the 1980s, the US government's spending "had  grown  during  the 1970s  and  1980s  more  rapidly than  in  any  equivalent  peacetime  period. This led, especially after 1980, to a precipitous rise in the federal budget deficit.'  By 1985, the federal budget deficit exceeded $200 billion; fifteen years before, the entire federal budget was $200 billion." [7] Despite the need for an end to the massive deficit problem, Congress and the President were unable to agree on a mixture of tax hikes and spending cuts "to halt, much less reverse, the trend of deficit growth." [8] Thus, the GRH bill was proposed in 1985.

The GRH bill specifically "created a five-year deficit reduction plan, with decreasing deficit targets each year, until the budget would be balanced in fiscal year 1991." [9] As was mentioned before, if the targets were not met cuts would be made. "Fifty percent of the cuts would come from domestic discretionary spending and fifty percent from defense. Social Security, Medicare, several anti-poverty programs, and interest on the debt were exempted from a potential sequester." [10] This can be seen as quite problematic because it would place education, the sciences, and the arts on the chopping block while leaving the private sector alone.

The bill had mixed support, yet overall it "garnered bipartisan support and was signed into law by President Reagan in December 1985." Republicans and Democratic supporters argued that the deficit "required dedicated measures to reign in federal spending" and the GRH bill was going to make it happen. Democrats who voted against the bill did so on the premise that it left defense spending untouched and that the "budget cuts were likely to impact domestic programs." [11] In 1986, the Supreme Court ruled the bill unconstitutional "on the grounds that the sequestration process gave Congress undue budgetary power" [12] because "by requiring an agent of Congress (the Government Accounting Office) on what and how much to sequester GRH 1 placed Congress in the middle of executing the law, which is the constitutional responsibility of the executive [branch]." [13]  While the GRH bill was reformulated "with a new sequestration process and deficit numbers (the revised legislation also pushed back the date at the budget was to be balanced to 1993)" [14] and made into law the following year, the battle to create a balanced budget did not end.

In 1990, as a part of the Budget Enforcement Act, a pay-as-you-go or PAYGO system was enacted by the federal government to rein in the deficit.

In that year, President George H. W. Bush and the leadership of the Congress painfully negotiated a very large deficit reduction package of spending cuts and tax increases. Having accomplished so much, the Congress was concerned that the package would eventually erode, because future Congresses would reverse the spending cuts and tax increases bit by bit. PAYGO helped to prevent this and was supplemented by caps on appropriations and outlays for discretionary programs. [15]

Thus, PAYGO was not about creating a surplus or even eliminating the deficit, rather the purpose of PAYGO was to enforce a deficit reduction agreement between the President and Congress and have both sides stick to it.

PAYGO originally "was a statutory requirement providing that any legislation to lower revenues or expand entitlement spending be offset with corresponding revenue increases or entitlement spending cuts." [16] In theory, the legislation sounded reasonable, yet it was quite hard to pass as neither the President nor Congress agreed to it. President Bush agreed "to a no-precondition summit in order to avoid an automatic GRH cut of $100 billion" [17] and from there endorsed the PAYGO plan, but conservative Republicans and liberal Democrats (the two groups that had been excluded from the summit) wouldn't allow the legislation to be passed. Only after Bush vetoed an extension and the government shut down for about three weeks, did Congress give in and pass the legislation.

PAYGO expired in 2002, but in 2006 it came back with a vengeance and was slightly modified. Instead of having to be deficit neutral for every year, the proposed budget would now be "that each bill be deficit neutral in total over the six-year period consisting of the current year, the budget year, and the next four years and also be deficit neutral over the eleven-year period consisting of the current year, the budget year, and the next nine years." [18] In other words, it became much more difficult to pass a budget because it had to be deficit neutral over a total of nine years.

In theory, PAYGO sounded great to both parties, yet in practice neither of them obeyed it. The Democrats ran in 2006 as supporters of PAYGO, yet once in office "they quickly made exceptions, waiving paygo no fewer than 12 times to accommodate some $398 billion in new deficit spending" [19] while Republicans "abandon[ed] pay-as-you-go budgeting, returning to the Bush-Cheney approach -- endless borrowing." [20] Due to the incompetence of both parties, the demonization of programs that the Democrats or Republicans opposed, and endless support of programs that they supported, the PAYGO legislation failed.

Currently, Congressman Paul Ryan (R-WI) has proposed his own personal budget reduction plan which hurts not only the poor, but also the elderly. Yet the Republican-controlled House has approved the bill.

Ryan's plan hurts the poor because the savings "all come from cuts, and at least two-thirds of them come from programs serving the poor. The wealthy, meanwhile, would see their taxes lowered, and the Defense Department would escape unscathed." [21] Ryan's plan hurts those who can least afford it in this current recession. It is quite ironic that the poor are being targeted in this recession because they could quite easily turn to crime if the government leaves them with no assistance as they try and get back on their feet.

The plan also hurts the elderly because in the long-term, the amount that they will be forced to cover will increase their medical payments. Ryan's plan is to "[replace] Medicare with vouchers with which older folks can use to buy private health insurance." It sounds good, yet the vouchers "are linked to the CPI, not to the inflation rate of healthcare expenses (and private insurance costs)." [22] Thus as time goes on, the elderly will be forced to cover more of their insurance plans because the vouchers will cover less and less.

Ryan's plan isn't as good as either the Gramm-Rudmann-Hollings bill or the PAYGO plan. In the GRH bill, the bill created annual targets until the deficit was eliminated and the cuts came mainly from social programs, yet they came from a variety of social programs and it could be amended (with enough support) to include defense spending. Ryan's program looks more like a war on the poor. It also differs from PAYGO in that PAYGO, while it was tough to get items to be budget neutral for nine years, it truly worked for budget neutrality. PAYGO acted as an equalizer rather trying to balance out the budget solely through cuts.

Ryan's budget proposal will not be successful because the economics are completely wrong. By privatizing Medicare, as was stated before, Medicare will become more expensive. "[T]he bipartisan Congressional Budget Office calculates that overall health care spending will go up as Medicare recipients are forced to buy private insurance, since private insurance has far higher administrative expenses than Medicare." [23] Besides that, the tax cuts are solely for the wealthy. If Ryan's plan goes through they will experience a $125,000 tax cut (on average) while cuts will be made "not only to Medicare and Medicaid, but also to infrastructure spending and funds for Pell Grants for college tuition—both areas that are crucial to the nation's long term economic performance. " [24] The main problem with Ryan's plan is that it masquerades as a legitimate budget balancing plan, yet in reality is nothing but an effort to aid those who already quite well-off.

So far, the government has been unable to create a balanced budget due to its overall incompetence and ineptitude, thus it is now up to the people to push both Democrats and Republicans in a direction that will create fiscal balance for the country. It is either that or this madness will continue.


3:  Ibid

8: Ibid

10: Ibid

11: Ibid

12: Ibid

13: Robert E. Dewhirst, Encyclopedia Of The United States Congress (Facts on File Library of American History), (New York, New York: Infobase Publishing, 2007) 245.

24: Ibid

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