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

In a word:  "No":  the U.S. doesn't have a deficit problem. It has a recession problem.

In an email blast, good government advocate Public Citizen called Congress' obsessive focus on the budget deficit a "distraction". Short-term, it said, budget deficits help, not hurt, the U.S. economy; congressional efforts to cut Social Security and Medicare are misguided and wrong; and Congress is ignoring important and obvious new sources of revenue.

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

The budget deficits of recent years are a direct result of the economic crisis in the U.S., due to a combination of depressed economic activity and falling tax receipts, it said.  In order to raise revenues and eliminate short-term deficits, the U.S needs to kick-start its economy and put people back to work, it said.

Since the 2008 Wall Street blowout, the U.S. economy has been kept afloat only by government red ink, it said, and with the U.S. economy at 6% below potential, deficit reduction spending is still necessary.

Cutting spending and raising tax revenues may make sense in theory, but the bottom line now is that deficit spending is helping, not hurting, the American economy. There is no acute "budget crisis," it said.

There is also no Social Security crisis, and therefore 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. We have 23 years to address any problems down the road, it said.

Social Security doesn't even belong in deficit-reduction talks, it said, because the program is funded through a payroll tax on working Americans, completely separate from general revenues.  Therefore cutting Social Security would do nothing to reduce the federal budget deficit.

As for Medicare, it said, fixing it means strengthening, not weakening, it.  Unlike Social Security, Medicrare faces a mid-term fiscal problem due to uncontrolled health care costs. Strengthening the program means curbing out-of-control profiteering by drug companies, insurance companies and other big players in the medical industry, it said.

Negotiating prices with drug companies would, conservatively, save the U.S. $150 billion over the next 10 years, with even higher savings achievable through more aggressive cost-control measures.

Raising the age of eligibility for Medicare or otherwise reducing benefits, or cutting Medicare costs by pushing them onto patients, would do nothing to deter profiteering by drug and insurance companies, it said.

Military spending is the biggest source of the billions in federal savings that could be realized over the next decade, it said.  If the U.S. did no more than eliminate unnecessary weaponry; cut back on privatization; and reduce its stockpile of nuclear weapons, it could generate $700 billion in savings over 10 years -- without even challenging its militarized foreign policy or having to choose between competing budget priorities.

The U.S. could also realize huge savings by ending federal subsidies for the fossil fuel industry, it said. Ending fossil fuel subsidies, by one estimate, would generate $100 billion in savings over the next decade.

Ending corporate welfare is yet another source of billions in savings. Cutting timber subsidies, for example, could save taxpayers $10 billion over the next 10 years.

Increasing corporate taxes, now at record lows as a share of GDP at one quarter of 1950s levels, offer yet another revenue generating opportunity. More than two dozen corporations, in each year from 2008 to 2011, paid zero in federal taxes -- with most actually getting tax rebates. Making these corporations pay taxes at the statutory corporate tax rate of 35% would have generated over $78 billion in tax revenues. The solution, it said, is to close the corporate loopholes in the U.S. Tax Code.

The giant Wall Street firms that plunged not only the U.S., but the entire world, into the "Great Recession" should be paying more taxes, not less, it said. Imposing a modest tax on Wall Street speculation, for instance, could generate at least $350 billion in revenues over the next decade, and potentially more.

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