When former vice presidential candidate Paul Ryan went on MSNBC’s “Morning Joe” to discuss budget negotiations this past week, he was asked a simple question, “What are you willing to put on the table that your base won’t like?” His answer sums up the intransigence and obstinacy the GOP have displayed over the past few weeks in regards to the direction the budget should take: “We put up a budget that balances.”
That’s not a compromise Mr. Ryan, that’s a policy objective. In all reality, the budget never actually balances, but economically speaking, it does. Whenever the government’s budget deficit falls below three percent of Gross Domestic Profit (GDP), the growth of the debt falls below the growth of the economy and inflation, leading to the debt shrinking as a portion of the economy.
The president has already stepped out on quite a limb by offering to reform entitlements, much to the chagrin of his base. It seems that Republicans are unable to reciprocate and make compromises that are difficult choices.
For years, Republicans have screamed deficits and debt at the top of their lungs as if it were the end all and be all of important government policy. The most inane statements were regularly repeated such as, “If my family has to cut back why shouldn’t the government?” The government isn’t a family and its budget cannot be compared as such.
The greatest driver of the deficit wasn’t a massive uptick in government spending, but rather a massive drop in revenue due to the recession. The deficit wasn’t a spending problem but a revenue problem due to the economy contracting.
The biggest kept secret is that the deficit is rapidly shrinking already, even without the effects of the sequester kicking in. In 2009, the deficit, according to the Congressional Budget Office (CBO), was 10.1 percent of GDP. By 2013, the deficit has fallen to only 5.1 percent of GDP. In less than four years the budget deficit has been completely cut in half and by the end of Obama’s second term it is projected to fall below the magical number of three percent of GDP.
The economic expansion period that we are currently in has grown the economy to the extent that new revenues are coming into the treasury at an increasing rate. This is helping to eliminate the budget deficit. We were never going to tax or cut our way out of the deficit but rather grow our way out.
The budget is an incredibly complex piece of legislation that assigns the spending of over $3.6 trillion (Fiscal Year 2012) across hundreds of federal departments and agencies. Many seem to assume that cutting our way to a balanced budget would be a simple endeavor since the assumption that most spending is government waste is a rather common one. As the sequester has proven, you can’t cut programs without hurting significant portions of the economy.
Of the $3.6 trillion budgeted for 2012, 45 percent is Social Security and Medicare, 19 percent is defense spending, 13 percent is other mandatory spending, and six percent is in interest on the debt. This leaves only 17 percent of the budget left, or $615 billion left in discretionary spending. That discretionary spending covers things such as student loans, NASA, the FBI, the USDA, Head Start and almost every widely used federal program outside of Social Security and Medicare.
To give perspective on why cutting our way out of this problem is a very bad idea, one only needs to look at the size of the discretionary spending side of the budget and compare it to the budget deficit which stood at $1.1 trillion for the year 2012. To get a budget that’s balanced in 2012, the entire government would have to have been gutted and shut down including the military. Student loans would not have been given out, food stamps would have ended and the military would have been dismantled. The only thing left in the budget would be payouts for Social Security, Medicare and interest on the debt.
As I stated before, the deficit is actually shrinking faster than anyone anticipated due to a rapidly growing economy. The House Republicans assume that the deficit is a lingering problem but the long term outlook suggests that without any intervention, the deficit will still fall below three percent of GDP which would make it sustainable. An analysis by the Washington Post put the difference between the Republican and White House budgets at $4.6 trillion over 10 years. The White House wants to keep funding for vital social programs such as Head Start while the Republican budget seeks to make massive cuts towards healthcare, education and Social Security.
The Republicans include massive new tax cuts in their budget which would offset much of the savings of their cuts and thus their budget never truly balances. If the last two months have shown anything, cuts of this scale can be devastating for families. Cancer patients are going without treatment because of cuts to Medicare and Medicaid and kids are being kicked out of the Head Start program. There would only be more pain from much more dramatic cuts being proposed by the Republicans.
The White House budget gets the deficit to a manageable level while keeping funding for vital social programs that help the middle class and provide an economic ladder for the poor. We can’t tax or cut our way out of the deficit problem but we can grow our way out. The way we do this is by making the critical investments in our economy that are so desperately needed.