1/6/13

Does the U.S. Have a Budget Deficit Problem?

In a word:  "No":  the U.S. has a recession problem.

Good government advocate Public Citizen, in an email blast,  called Congress' obsessive focus on the budget deficit "distracting". In the short-term, it said, high budget deficits are helping, not hurting, the U.S. economy; efforts to cut Social Security and Medicare are misguided and wrong; and Congress is ignoring important and obvious new revenue sources.

Given the current high rate of unemployment in the U.S., the country couldn't keep its economy running without an acute budget deficit, it said.  Without the deficit, U.S. unemployment would be even worse.

The budget deficits of recent years are a direct result of the U.S. economic crisis, it said: depressed economic activity and falling tax receipts.  Raising revenues and eliminating short-term deficits requires kick-starting the economy and putting people back to work.

The U.S. economy, operating at 6% below potential, needs deficit reduction spending, it said.  Only government red ink has kept it afloat since the 2008 Wall Street blowout.

Spending cuts may make sense, and tax revenues could be expanded, it said, but the bottom line is that high deficits now are helping, not hurting, our economy.  So there is no acute budget crisis.

There is also no Social Security funding crisis, it said, and so no reason to mess with Social Security, our country's most important and successful anti-poverty program. As currently structured and at current benefit levels, Social Security is fully-funded through 2033, with any problems twenty years down the road, it said.

President Obama's purported offer, in the fiscal cliff negotiations, to accept a change in the way Social Security cost-of-living inflation adjustments are made (“chained CPI”), would, over time, amount to a huge cut in benefit levels.

Social Security shouldn't even be part of deficit-reduction talks, it said, because the program is funded through a designated tax on working Americans wholly separate from general revenues.  Cutting the program would do nothing to reduce the federal budget deficit.

Fixing Medicare, it said, means strengthening, not weakening, it.  Medicare, unlike Social Security, faces a mid-term fiscal problem due to uncontrolled health care costs.

Strengthening Medicare means ending out-of-control profiteering by drug companies, insurance companies and other major players in the medical industry, it said. Negotiating prices with drug companies would, conservatively, save $150 billion over 10 years, with even higher savings possible through more aggressive cost-control measures.

Raising the Medicare eligibility age or otherwise reducing benefits, cutting Medicare costs by forcing  patients patients to pay them, does nothing to control drug and insurance company profiteering, it said.

The most significant source of the billions in federal savings realizable over the next decade is controlling military spending, it said. Simply eliminating unnecessary weapons, cutting back on privatization, and reducing nuclear weapons would generate $700 billion in savings over 10 years -- without even challenging our over-militarized foreign policy or making tough choices between competing budget priorities.

We could also realize huge savings by ending federal subsidies for the fossil fuel industry, it said.  By one estimate, cutting fossil fuel subsidies could generate $100 billion in savings over the next decade.

Ending corporate welfare would provide yet another source of billions in savings. As an example, cutting timber subsidies would save the taxpayers $10 billion over the next ten years.

Corporate taxes as a share of GDP are at record lows:  at 1/4 of what they were in the 1950s. More than two dozen corporations paid zero federal taxes in each year from 2008 to 2011 -- most of them actually getting rebates. Making these companies pay at the statutory corporate tax rate of 35% would have added more than $78 billion to the federal budget.

The solution, it said:  close corporate loopholes in the U.S. tax code.

The giant Wall Street firms that plunged the country -- and the world -- into the Great Recession need to pay more taxes, it said. A modest tax on Wall Street speculation could generate at least $350 billion over the next decade, and potentially more.

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