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So Now How Do We Reduce The Deficit?

by David Teitelbaum (Principles: It all begins with Respect. ) - 5 month ago

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Congress proved that they can reach bipartisan agreement on spending which increases the federal deficit. Now, they must do the harder part and reach bipartisan agreement to reduce the deficit.

One way to look at it is to say that the Conservatives were played for fools. First, they were enticed into voting for a massive tax cut which fit into their philosophy that government should do less. Then, out of nowhere, a bipartisan budget deal blindsides them with enormous increases in defense spending nearly matched by an equal increase in domestic spending. The outrage was palpable, as demonstrated by Rand Paul singlehandledly shutting down the United Stated government for 5 hours.  

Of course, the Conservatives have no one to blame but themselves. They could have demanded spending cuts as a condition for voting for the tax cuts. With Democrats unanimously opposed to the tax cut bill, the Conservatives had maximum leverage to demand fiscal responsibility. For whatever reasons, they chose to not use that leverage and, as a result, the United States is now locked into annual trillion dollar deficits for as far as the eye can see. 

It is not sustainable. While the U.S. can always print money to cover the interest payments on its debts, massive deficits will ultimately decimate our economy. The vicious cycle of more debt leading to higher interest rates leading to higher interest payments and even more debt will siphon capital away from the kinds of investments needed to grow the economy and ultimately the U.S. will be working just to pay off its debts to foreigners. Democrats and Republicans agree that something must be done to address this problem.

Where they disagree is the fault line that will likely define the 2018 and 2020 elections.

For Democrats, the answer is going to be simple – repeal the tax cuts on businesses and the wealthy. They will ask why we needed to add $1.5 trillion to the debt when the economy was growing at a steady pace and unemployment had already fallen to historic lows.  Further, even the $1.5 trillion price tag is understated because it assumes that the tax cuts for individuals will expire. Reversing most of the corporate tax cuts while still preserving cuts for lower and middle income Americans would certainly make a dent in the projected annual deficits.   

The Republicans, of course, will do everything they can to protect the business tax cuts that represent their most important accomplishment under President Trump.  Instead,  they will turn their attention to the only large target still remaining in the federal budget – Social Security. Under current law, Social Security is projected to add $2.7 trillion to the deficit over the next 17 years - and then benefits will be automatically cut.  Republicans will argue that benefit cuts are inevitable and it is better to do so now in a rational, humane manner which protects current retirees and gives future retirees an opportunity to plan. Passing legislation to better align Social Security benefits with Social Security taxes would certainly be an important step toward fiscal sanity.  

The attack ads are already being written. Democrats will claim that Republicans want to reduce our senior citizens to poverty and Republicans will accuse Democrats of sending the country into a new Great Depression by even suggesting that corporate taxes should be increased to a level close to where they were before.

It will all be very dreary stuff with both parties trying to convince Americans that their approach is the only way. We may even witness the incredibly silly spectacle of Republicans demanding more tax cuts with Democrats saying we should increase social security benefits.   

If there is one positive from the past week that we can point to, it is that the parties did successfully create a bi-partisan spending bill which addressed critical military and domestic needs. They proved that they can work together to spend more money. Now, they need to prove that they can also work together to move us back toward fiscal sanity.

The way to do that is to raise corporate taxes and reduce future Social Security benefits to a level our country can afford.  

 

Comments and Responses (1)

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By  Facebook Commenter - 5 month ago
Showing a picture of Rand Paul on an article about the US federal deficit shows that the author lacks seriousness. Tax cuts accomplish one purpose: they reduce government revenues. If the economy is so robust that revenues increase on the current tax valuations, it is fair to cut them and leave that money in private hands. The tax cut passed in 2017 added $1.5 to the US deficit in its DESIGN. In its application the loss of revenue will be much greater as higher interest rates and an economic soft landing or downturn will inevitably ratchet it up. Whatever the merits of a small, middle class tax cut, and both politically and economically a case can be made for it, the huge and undifferentiated corporate tax cut and the rich people tax cut offset those benefits. Taxing a fortune 500 corp as the same rate as a hairdresser's LLC is obscene. Showing the picture of a Senator who voted for this terrible tax cut as an advocate of a balanced federal budget is a cruel joke.
Discussion Leader's Response : This comment is relevant to the discussion. (Commenter's rating is increased.)
Discussion Leader's Explanation : In fairness to Senator Paul, he, at least has been consistent in demanding across the board spending cuts. Unlike his Republican colleagues, he opposed the increases in military spending. His view is that the U.S. can and should get by with a smaller military by simply reducing our list of "vital national interests" to only those things that are truly vital to us. You and I can disagree with his policies but he legitimately is an advocate for a balanced budget. As to the rest of the Republicans who voted for the tax cut bill, I agree with you. The $1.5 trillion amount understates the true cost of the law because Congress will never allow the tax cuts for individuals to expire. Also, as I state in my article, if they were truly serious about balancing the budget, they would have passed spending cuts in conjunction with the tax cuts. Republicans are clearly not serious about the deficit. However, I also wish Democrats would get serious about Social Security. Thanks for commenting