In fact, it really doesn't. A government does not face the same debt constraints as a business. In fact, all of government need to do is reduce the annual budget deficit (plus interest) below the inflation rate in order to make its debt levels sustainable.
Even the aggressive debt reduction proposed by the President's debt commission only sought to reduce the debt, over time, to less that 40% of GDP. Their plan continues to run a budget deficit for another 15 years or so. It recommends only an average annual budget cut of 461 billion dollars spread over 18 years. Obviously, considering the state of the economy, they start small and build over time.
The commission rightly points out that the real issue in solving America's debt problem is reducing the amount of money we spend on health care. That takes reforming the health care industry, not just government's role in it. Health care already accounts for 20% of government spending, which is higher than any European country with their "socialist" medical systems. To make matters worse, the rate of spending is growing fast.
Clearly something is wrong, and we need policies to reduce this spending (while taking care of our people), or we will, in fact, go completely broke. The debt commission gets the ball rolling by recommending that a public option is included in Obama's reform of the health care system. But thanks to the way health care markets work, you can reduce the amount we spend on health care and make it more equitable at the same time. The current health bill should be a big start.
There are many other good ideas being pushed around right now on how the US's long-term deficit can be reduced. Again, start with the debt commission. This includes tax reform, military spending, increasing government efficiency and reducing spending in other discretionary programs.
And before you start screaming liberal-commie-nazi whatever, one of the co-chairs of this commission is Alan Simpson, the former Senator from Wyoming and a pretty hardcore conservative. He's not alone. Republicans actually made up half of the commission. True to form, their plan does not even recommend increases in taxes. Instead, they decrease tax rates and eliminate expenditures through a simplified system. This should result in higher tax revenues. So, it seems like there's considerable flexibility in a combination of tax increases and spending cuts to balance the budget.
The people that actually care about the deficit (not deficit politics) already took a good stab at it through the health care reform. And who is trying to dismantle that? Why, the people that keep talking about the deficit of course.
The long-term deficit is an issue, but I need to reiterate that now is not the time to cut government spending. Unemployment is still at 9 percent. You can't collect taxes from people without jobs, and you can't in good conscience cut their benefits when there are no jobs for them. Even worse, cutting spending at the rates originally proposed by the House GOP would cost another 700,000 jobs.
Depressed spending can lead to a downward spiral, and spending cuts now might not do any good since they'll be offset by the spending on the newly employed. Get unemployment down to 6 percent, and then start pulling back. Then there will be a tax base back in place that we can actually work with. And then we can assess program cuts and tax increases.
One last thing, if anyone out there want to play apocalypse watch, the best place to go is check 10-year US treasury rates. As rates go up, they indicate that the market is losing its confidence in the government's ability to pay off its debt (at least for the next 10 years). They are pretty damn low right now, and considerably lower than the historical average.
In other words, investors thought the Reagan administration was going to be far less likely to pay off its debts than the current one. Funny how that is, given the rhetoric surrounding Washington these days.
There are many other good ideas being pushed around right now on how the US's long-term deficit can be reduced. Again, start with the debt commission. This includes tax reform, military spending, increasing government efficiency and reducing spending in other discretionary programs.
And before you start screaming liberal-commie-nazi whatever, one of the co-chairs of this commission is Alan Simpson, the former Senator from Wyoming and a pretty hardcore conservative. He's not alone. Republicans actually made up half of the commission. True to form, their plan does not even recommend increases in taxes. Instead, they decrease tax rates and eliminate expenditures through a simplified system. This should result in higher tax revenues. So, it seems like there's considerable flexibility in a combination of tax increases and spending cuts to balance the budget.
While all of these proposals are important, it's important to understand the politics of the current debate. All of this debt posturing has nothing to do with deficits and everything to do with enforcing a specific vision of society on America during a time of crisis. This includes eliminating public unions even after they've agreed to take pay cuts and canceling programs for the poor to continue tax breaks for the rich. The party of "fiscal conservatism" just fought tooth and nail to make sure that rich people got additional tax cuts. They have reiterated, time and again, that they want these to be permanent. I'll believe a conservative that says he's serious about the budget the moment they stop giving millionaires handouts.
The people that actually care about the deficit (not deficit politics) already took a good stab at it through the health care reform. And who is trying to dismantle that? Why, the people that keep talking about the deficit of course.
To make matters worse, the Republican Party spends an exorbitant amount of time on nonsense like defunding planned parenthood, attacking NPR and eliminating relatively tiny poverty programs . This is just crappy political gamesmanship. And it sucks that it happens, because while these millionaires in Washington might be doing perfectly fine, many, many people are suffering.
The long-term deficit is an issue, but I need to reiterate that now is not the time to cut government spending. Unemployment is still at 9 percent. You can't collect taxes from people without jobs, and you can't in good conscience cut their benefits when there are no jobs for them. Even worse, cutting spending at the rates originally proposed by the House GOP would cost another 700,000 jobs.
Depressed spending can lead to a downward spiral, and spending cuts now might not do any good since they'll be offset by the spending on the newly employed. Get unemployment down to 6 percent, and then start pulling back. Then there will be a tax base back in place that we can actually work with. And then we can assess program cuts and tax increases.
One last thing, if anyone out there want to play apocalypse watch, the best place to go is check 10-year US treasury rates. As rates go up, they indicate that the market is losing its confidence in the government's ability to pay off its debt (at least for the next 10 years). They are pretty damn low right now, and considerably lower than the historical average.
In other words, investors thought the Reagan administration was going to be far less likely to pay off its debts than the current one. Funny how that is, given the rhetoric surrounding Washington these days.
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