Category Archives: Debt and deficits

Shrink government by actually paying for it

Debt and deficits, U.S. Congress

By Steve Brawner
© 2014 by Steve Brawner Communications

Do you want to reduce the size of government? I mean, really reduce it, instead of just talking about it? There’s one surefire way. Pay for the government we’re buying. If that means raising taxes, so be it.

It’s simple economics. To reduce consumption of a product, raise the price.

I’ll explain. For decades, Americans have been buying big government at what has felt like a steep discount. Since 2001, we’ve fought wars, deposed dictators, and created huge government programs under Presidents Bush and Obama. Meanwhile, thanks to the Bush tax cuts, Americans have been paying historically low taxes.

In the meantime, the national debt has increased $11 trillion just since Sept. 30, 2000 – equal to more than $35,000 for every American currently living, or $140,000 for a family of four.

None of this is a coincidence. When something is cheap, people consume more of it, and that includes government. During the past 14 years, we’ve gotten $11 trillion of government for which we did not pay. Naturally, we’ve done what consumers always do when given free stuff: Accept it, and expect more. That will continue as long as we keep using this national credit card that never seems to come due. But come due it will.

The only way we’ll ever shrink government, and the only way we’ll stop increasing the debt, is if Americans finally understand the true costs of these national policies. That will only happen when they pay for them. Imagine if the average family of four had been required to pay $140,000 more in taxes these past 14 years. Don’t you think there would have been a much more vigorous debate about whether the United States could afford these military actions and big government programs?

In 2004, the late William Niskanen, chairman of the Cato Institute, made the same argument. The Cato Institute is not a left-wing outfit; instead, it supports greatly reducing government. Niskanen studied the growth of government from 1981 to 2000. He found that federal spending increased by half a percent of the nation’s gross domestic product for each one percentage point decrease in tax revenues. In other words, as taxes were reduced, government grew. We were running deficits almost every year then, too.

Unfortunately, while both Republicans and Democrats like increasing the size of government, they don’t like making Americans pay for it. The latter is especially true among Republicans. Years ago, the conservative movement adopted a theory known as “starve the beast.” The thinking was by reducing the tax revenues sent to Washington, government naturally would shrink.

Conservatives weren’t thinking like economists. Government did not shrink. Why would it? We weren’t paying for it.

Even though it hasn’t worked, “starve the best” remains the dominant strategy among conservatives. Many Republicans at the federal and state levels have signed the Americans for Tax Reform’s “Taxpayer Protection Pledge,” stating they will resist efforts to raise taxes. Every current Republican member of Arkansas’ congressional delegation has signed the pledge, as have the two Republicans challenging for seats in Congress: French Hill in the 2nd District and state Rep. Bruce Westerman in the Fourth.

The pledge been an effective tool for keeping Republicans in line on tax increases. Unfortunately, there hasn’t been an equally effective “No spend pledge” where elected officials promise not to spend money the government doesn’t have.

Don’t you see the problem with that? Members of Congress can cut taxes but spend all they want because those most affected, the upcoming generations, don’t vote yet.

I don’t want to pay higher taxes any more than you do. But taxes aren’t the real problem. Big government is. If it grows like it’s projected to grow, eventually taxes must be raised, regardless of who has signed what pledge.

Let’s close by proposing two principles. First, if taxes are cut, spending should be cut at least that same amount. And second, except in extraordinary circumstances, Americans must pay the full price for the government we are buying. It’s the only way we’ll make wise decisions about how much of it we want.

Who got us into this debt?

Debt and deficits, Politics, U.S. Congress

By Steve Brawner

Who was the last Republican president to preside over a budget surplus throughout an entire fiscal year? When was the last time a Democratic Congress created a surplus? And when did a party create a surplus while controlling both the White House and the Congress?

It’s been a while in all three cases.

Let’s start by explaining the terms. The federal government’s fiscal year starts Oct. 1 and ends the next Sept. 30. A budget surplus occurs when the government collects more than it spends during a single fiscal year’s time. Most years our government runs deficits, which over time have created a $17.5 trillion national debt – an amount equal to more than $50,000 for every American. If the government were to run a $100 billion surplus this year (which it won’t), the national debt then would be $17.4 trillion.

The last time the federal government ran a surplus was 2001, when it collected $128 billion more than it spent, according to the White House Office of Management and Budget.

That was President George W. Bush’s first year in office, so he’s the last Republican president to preside over a surplus, right? Well, not really. The fiscal year began Oct. 1, 2000, nearly four months before Bush was president. His predecessor, Bill Clinton, signed almost all the bills that funded the government for 2001. Bush can’t get much credit for something that happened under Clinton.

The federal government also ran surpluses from 1998 to 2000 under Clinton’s watch. During that time, Republicans were in charge of both the House and Senate, so those surpluses occurred under a Democratic president and Republican Congresses.

Before that, the federal government had run budget deficits every year since 1969. That means that, each year, the overall debt grew larger. Working backwards, those deficits occurred annually under Republicans George H.W. Bush and Ronald Reagan, Democrat Jimmy Carter, and Republicans Gerald Ford and Richard Nixon.

Fiscal year 1969, a surplus year, ended during Nixon’s first year in office, but at that time the fiscal year started July 1, 1968, so Democrat Lyndon Johnson was president for more than half of it. Democrats controlled Congress the entire fiscal year.

That was the last time a Congress controlled by Democrats created a surplus. It was the year the United States first landed on the moon, and it was 45 years ago.

The previous surplus occurred nine years earlier in 1960 under Dwight Eisenhower, who also presided over surpluses in 1956 and 1957, working each year with Democratic-controlled Congresses.

Eisenhower therefore was the last Republican president to preside over a surplus during an entire fiscal year – 54 years ago. I like Ike.

When was the last time a surplus occurred when a single party controlled both the White House and Congress? The surplus year of 1969 started under Johnson and occurred under a Democratic Congress. You could say it was that year.

However, the last time a party ran a surplus throughout an entire fiscal year while controlling Congress and the White House was 1951, when President Harry Truman and a Democratic Congress were in power. The last time Republicans balanced a budget while running everything was 1930 under President Herbert Hoover.

This is, admittedly, a simplistic analysis. The sample size is small. Since 1930, there have been only seven Republican presidents and only seven Democrats, and it’s relatively rare for a party to control the White House and both houses of Congress. Also, the fact that fiscal years don’t align with election years complicates things. Finally, budget surpluses and deficits are dependent on many factors a president and Congress can’t really control, including the actions of their predecessors.

Still, it should be clear that both parties share the blame for this $17.5 trillion debt we’re passing on to our children. Just getting rid of that Democrat in the White House or firing only those Republicans in Congress will not solve this particular problem.

Both Republicans and Democrats led us into this hole. So who’s going to lead us out?

Good times renew bad habits in Congress

Debt and deficits, Politics, U.S. Congress

By Steve Brawner

When a person is trying to solve an old problem, one of the most dangerous times is when they’ve had some success – especially when they really haven’t changed their mindset or habits. They’ve lost some weight on a fad diet, so they head for the buffet. They’ve cut down on their alcohol for a few weeks, so they drop into the bar because they’ve “earned it.” They’ve been pretty good about spending money lately, so they splurge.

Soon they’re eating, drinking and spending more than ever. Old habits die hard.

Congress is composed of people just like the rest of us, and those people also are vulnerable to the hazards of success. We’re starting to see that on display regarding the federal budget deficit.

The good news is that annual deficits temporarily are falling. The Congressional Budget Office (CBO) is estimating that Congress will “only” overspend by $492 billion this fiscal year – much better than 2009’s $1.4 trillion deficit and the trillion-dollar deficits that followed.

Why the positive direction? The economy is improving, so the money is coming in. Also, those huge deficits were so alarming that even Congress and President Obama were inspired to raise taxes a little on the wealthy, let the payroll tax cut expire, and allow spending cuts to occur through the sequester.

Here’s the bad news. While this year’s annual deficit is smaller than it’s been, it’s still not a surplus, which means we’re still adding to the national debt – now $17.5 trillion, or more than $50,000 for every American. The deficits soon will start rising again, eventually hitting about $1 trillion again in 2022. Each year, the national debt will increase as a result.

Unfortunately, Congress and President Obama failed to use that string of trillion-dollar deficits as an opportunity to really address the country’s ingrained habits. There was a lot of talk but little action. They didn’t craft bipartisan solutions for Social Security’s and Medicare’s long-term problems. They didn’t significantly reduce military spending or question if the United States should remain the world’s policeman. They didn’t reform the convoluted, anti-growth tax code. They didn’t structurally reform how we govern ourselves.

Now that the sense of urgency is gone and we’re only overspending by $492 billion, what will happen next? We’re starting to get an idea.

The U.S. House of Representatives voted May 9 to make permanent what had been a “temporary” research and development tax credit that has been around since 1981 and extended many times. All of the members of Arkansas’ House delegation voted yes except Rep. Rick Crawford, who was attending to the death of his mother.

Now the House Ways and Means Committee is planning to vote on permanently extending and in some cases expanding more tax breaks. Those potential expansions would increase the national debt by about $80 billion over 10 years, according to the Committee for a Responsible Federal Budget.

The Senate was to vote on its own bill, perhaps this week after press time, that would extend the research and development tax credit two years and also renew about 50 temporary tax breaks that Congress also routinely extends, including breaks for racehorse owners and makers of Puerto Rican rum.

What’s wrong with all these tax breaks, besides the fact that they tend to reward only certain groups of the well-connected? In both the House and the Senate, Congress isn’t even trying to offset them with spending cuts.

That’s regrettable but not surprising. The immediate crisis has passed, we’re no longer running trillion-dollar deficits, so it’s time to reward ourselves with a trip to the buffet or bar.

Old habits die hard. We’ll worry about the debt when it feels like a crisis again – which it will, eventually.

Would you vote for Joe?

Debt and deficits, Elections, Politics, U.S. Congress

By Steve Brawner

Would the following campaign ads be effective with you? I’m really asking.

In all of them, the congressional candidate – call him “Joe” – faces the camera before an unadorned white background. There’s no stirring music, no slow-motion photography, no phony interactions with average Americans, and no rehearsed kitchen table scenes with the family. No narrator describes his opponents ominously.

In a calm voice, Joe describes a serious, ongoing national challenge. Let’s say it’s the national debt. He says the country is $17.5 trillion in the hole – equal to well over $50,000 for every American. He says we’re willfully passing on this debt to our children, and it’s time to be bigger than this.

Then he says you’ll have a different choice this time. He won’t promise what he can’t deliver. If you elect him, he will go to Washington and make hard choices. He’ll also tell you what those choices are beforehand.

That’s all Joe can squeeze into 30 seconds.

In another ad, he tells you he’ll treat the nation’s finances like he would treat his own if they weren’t adding up. Years ago when he was broke, he had to reduce spending on everything. If he’s elected to Congress, everything will be on the table, including popular programs like Social Security, Medicare and the military. Those three, plus interest on the debt, make up three-fifths of the budget, so they can’t just be ignored. “We’re past the point of just cutting waste,” he says.

Has he lost you yet, or will you still give him a chance?

In another ad, Joe says the government is awash in so much red ink, and it’s made so many promises it can’t get out of, that the budget can’t be balanced without more revenues. The American people have made it clear they’ll only cut so far, and it’s not enough to balance the budget. He won’t vote to raise tax rates, but he will support cleaning up the tax code. He’ll go after fat-cat loopholes first, but he also favors changing other deductions with widespread support. Those would include the mortgage interest deduction, which he says encourages homebuyers to go into too much debt the way it’s structured now. When the budget is balanced and the national debt is being paid down, he’ll start voting to cut taxes.

In both ads, he says he’ll listen to your concerns and be open to compromise. But you can trust that he will never pander to you, and he won’t vote to put our children in ever deeper debt. “Americans will pay our own way from now on,” he says.

Joe runs one more ad pledging not to run a single negative commercial, and if outside interest groups do so in his favor, he’ll denounce them. You’ll elect him for the right reasons, or he’ll just have to lose. His Bible taught him not to bear false witness against his neighbor, and his mama taught him that if you can’t say something nice about someone, don’t say anything at all.

Joe has offered specific proposals for addressing a compelling national problem. You probably won’t agree with all of them, and some may even offend you.

But would you prefer a candidate who tells you nothing, offers “solutions” that don’t solve anything, and explains every problem by blaming the other party? The political professionals who produce most of today’s ads are certain you would.

Ross Perot campaigned for president sort of like what I’ve described using 30-minute ads, not just 30-second ones. In 1992, he used charts to lay out the country’s financial situation. Back then, the debt was $4 trillion – less than a fourth what it is now. He won 19 percent of the vote as a third party candidate.

But he was a billionaire. If Joe’s not rich, I’m not certain he could even raise the money to get on the air.

If he could, could you vote for Joe?