iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
David Coates

David Coates

Posted: March 24, 2011 12:37 PM

Reframing the Deficit Debate


The dominant discourse in national American politics these days is a discourse on deficits. The leadership of the Republican Party, emboldened by their mid-term capture of the House, regularly informs us that "we are broke, and that we need to do something about it." By "we," they invariably mean the federal government. By 'broke," they mean the scale of borrowing currently necessary to balance the federal government's books. By "doing something about it," they mean the wholesale cutting of a swathe of discretionary public programs: $61 billion worth of such cutting if the mainstream Republican politicians have their way, $100 billion if the Tea Party agenda prevails. When American families overspend, as we are now so regularly told, they have to cut back on the things they buy. They can borrow, of course, just like the government is currently doing: but piling up debt only puts off until tomorrow the restraint necessary today. It puts that restraint off, and it makes the ultimate scale of reckoning worse. In the end therefore, and ideally immediately, budgets have to balance. That is a fact of life - a fact of life for families and a fact of life for governments. American families are currently cutting back, and the federal government needs to do the same. When the Republican leadership is not busy eroding the reproductive rights of women - its other clear preoccupation - it is regularly pressing for a rolling back of the already modest American welfare and regulatory state, and doing so under the label of "fiscal responsibility."

What could possibly be wrong with that? What could possibly be wrong with holding the federal government to the same standard as that applied to hard-pressed American families? Well, actually, quite a lot.

There are at least three things missing from the dominant discourse, three bodies of material that progressives need continually to bring back into the public conversation about deficit reduction. We need continually to reassert (a) that "we" are not broke; (b) that cutting programs would not the best way to reduce the deficit, even if we were broke; and (c) that the dominant issue in American life - as distinct from in American politics - is not the scale of public borrowing. America has many bigger problems than its supposedly dangerous deficit, problems that premature deficit reduction will likely make even worse.

1. We are not broke. We are certainly not broke in the sense of facing any immediate problem of financing public debt. On the contrary, the federal government is currently able to borrow at a historically low rate of interest - lower indeed now than immediately before the 2007-8 financial melt-down. Moreover, the federal tax take - the share of GDP passing through the hands of the federal government in the form of direct and indirect taxation - is actually at a 60 year low; not, of course, that you would know this if the only people to whom you listened were John Boehner and Paul Ryan.[1] So before any cutting of discretionary programs takes place, the opportunity is clearly there to raise tax levels back to those prevalent when the U.S. economy was last growing in any sustained fashion.[2] Indeed that was the main argument for the restoration of the Bush tax cuts: that allowing the tax cuts to lapse merely returned levels of personal taxation to those paid by American entrepreneurs and workers in the boom years of the 1990s. Since those boom years have left in their wake an even sharper scale of inequality between Americans than had prevailed even under Reagan,[3] there is clearly space too for clawing some of that excess back in the form of higher taxes on the super-rich.[4] The median income of mainstream America fell by 4.9 percent between 2001 and 2009 - the first fall in U.S. median income since the 1930s - so the space for taxing the middle class has clearly diminished;[5] but the space for taxing the rich remains firmly intact.

2. Cutting programs is not the best way to cut the deficit. It would be the best way, of course, if the major cause of the federal deficit was excessive spending on discretionary public programs. But it isn't.[6] At least 75 percent of the current shortfall in government revenues is a product of the recession. Another 11 percent is a product of decisions taken, by this administration and its predecessor, to wage a series of Middle Eastern wars.[7] The best way to cut the deficit is to end those wars and to retrigger sustained economic growth, not least by greater public expenditure on infrastructure and human capital. The best way to take any immediate pressure off the public purse would be to eschew tax cuts for the rich and to support public programs that cut the deficit over time.[8] Any party serious about deficit reduction would presumably do both those things straightaway. But the Republican Party is apparently not that serious. Its last act in the 111th Congress was to insist on the extension of all the Bush tax cuts through to 2013, adding $36 billion to the deficit in 2011 as it did so. Its first major initiative in the House, after taking control for the duration of the 112th Congress, was to repeal the health care reform legislation passed in 2010: adding - according to the CBO's first estimates - at least a further $230 billion to the deficit by 2021. It is hard therefore to avoid the conclusion that, far from being serious about deficit reduction as an end in itself, the new crop of Republican lawmakers are whipping up an hysteria about deficits as a smokescreen under which to take out programs to which they are ideologically opposed, and which they would wish to terminate regardless of the immediate state of the public finances.

3. Deficit reduction is not the nation's top priority, and nor should it be. As the political class in Washington squabbles over deficit numbers, the rest of America struggles with the on-going consequences of the recession. Unemployment is still officially at 8.9 percent, and in reality is much higher than that: labor market participation rates are at a 25 year low, and one American in six is currently either out of work or stuck in part-time employment that does not pay enough to cover the family bills. The unemployment rate among workers aged 16-24 is currently 21%. Not surprisingly therefore, poverty is on the rise again in America, directly affecting 14.3 percent of all Americans in 2009 - some 43.6 million people in total -with another 50 million low-paid Americans on the brink of joining them. Both poverty and unemployment are currently compounded by the on-going crisis in the housing market, a crisis still encompassing one American household in five.[9] Little wonder then that public opinion polls regularly put deficit reduction low on the list of the nation's pressing issues;[10] and little wonder too that liberal voices continue to stress that too rapid a reduction in public spending can only make that recession worse.[11] And if you doubt that, just look across the Atlantic, at a UK center-right government that is slashing public spending with enthusiasm: cutting taxes and services in almost equally measure, and presiding in consequence over rising unemployment among teachers and other public servants, diminished consumer confidence, and deepening levels of poverty and income inequality.[12] The Cameron Government in London, like their Republican equivalents here, insists that reducing the size of government creates economic opportunities which private enterprise will rapidly seize. Sadly, however, no such seizure is currently underway. What the UK faces right now is less a private sector renaissance than a double-dip recession - hardly a scenario worth voluntarily emulating anywhere.

Deficit reduction, Republican-style, is not sound economics. It is class warfare wrapped up in the language of accountancy.[13] What is being cut are services vital to the well-being of the American middle class and to the American poor. What is being protected is the private income of the corporate rich. The very people who elected Barack Obama to the presidency are now the main casualties of a deficit-reduction strategy that his administration is trying to temper rather than to reject. You would think, wouldn't you, that the White House would recognize the underlying evil behind this project, and respond accordingly. But so far it has not. Instead the Administration is triangulating again. It is deploying the same framework of understanding as its political opponents. It is talking of the federal budget as though it was equivalent to a family one. It is making a virtue of tough choices that erode welfare rights; and it is escalating its war-fighting expenditures at the very moment when a lack of public funds is costing teachers their jobs and Medicaid recipients their benefits. As Jon Stewart so wittily asked earlier this week, surely you can't fire teachers and tomahawk missiles at the same time. Well sadly, this Administration can, and is: spending more that $100 million a day in Libya right now. $100 million a day: think what that money could do if it were redirected to state governments currently laying off teachers and struggling to cope with the effect on their Medicaid budgets of the looming (July) termination of stimulus funds.

Instead of temporizing with Republicans who are determined to cut public services regardless of the appalling social consequences, the Obama Administration should, as a matter of high priority, mount a clear and sustained challenge to the whole logic underlying the Republican position. Instead of accommodation, the Administration should try principled rejection. The President should challenge the Republicans to shut the government down. He should force them to justify in public their toxic combination of tax cuts for the wealthy and the erosion of basic public services. He should remind the American electorate that it was Republican pressure that removed key cost-saving devices from the health care reform legislation - not least the cost-saving device of the public option. He should defend public sector workers against the nonsense that it is their largesse - rather than that of corporate America - that is bringing public spending to the point of collapse.[14] He should stand firm in defense of public sector unions and the right to collectively bargain. And he should not leave that job to Joe Biden alone.[15] He should do it himself. Because if he does not, Republican definitions of reality will continue to command the day; and from that basis of command will, in 2012, sweep all before them for want of anything better.[16]

The President would do well to remember that the important thing about legacies is that they have to be defended. Given the accommodatory strategy now prevalent in his White House, there is a genuine and growing danger that his administration may yet be the first in U.S. history to have surrendered its legacy before it has even left office. Given the tragedy that such a surrender would represent, let us hope that it is not too late to reverse this slippage into disaster. To stop the rot, the Administration has first to get off its knees.



[1] Income tax payments this year will be almost 13 percent lower than in 2008, and tax expenditures (that is, taxes that are excused - the biggest of which is currently the tax exemption for employer-sponsored health insurance - currently dwarf even the largest entitlement program expenditure. Tax expenditures will cost the US Treasury $1,053 billion in 2010. Medicare and Medicaid together will only cost $719 billion; and Social Security (which pays for itself) $701 billion. The cost of the health tax exemption is estimated to be more than $1 trillion over the next five years. For this data, see Seth Hanlon, "Tax Expenditure of the Week: Tax-Free Health Insurance," Center for American Progress, January 12, 2011, available at: http://www.americanprogress.org/issues/2011/01/te_011211.html; Stephen Ohlemacher, 'Taxes (as a percentage of economy) drop to lowest level in 60 years," posted on The Huffington Post, February 7, 2011: available at http://www.huffingtonpost.com/2011/02/07/taxes-low_n_819760.html; and see Jamelle Bouie, "Where the Cash At," The American Prospect, March 18, 2011: available at http://prospect.org/csnc/blogs/tapped_archive?month=03&year=2011&base_name=where_the_cash_at

[2] "In 2008, we ranked 26 out of the 30 countries in the Organization for Economic Co-operation and Development (OECD) in terms of our overall tax burden - the share of our economy we fork over to the government. The U.S. came in almost 9 percentage points below the average of the group of wealthy nations, and some 20 points behind highly taxed countries like Denmark." (Joshua Holland, "The 9 Biggest Conservative Lies About Taxes and Public Spending", posted on Alternet December 19, 2010, and available at http://www.alternet.org/story/149265)

[3] The top one percent of U.S. income earners took for themselves two-thirds of total income growth between 2002 and 2007. ( Data from the Center for Budget and Policy Priorities, available at: http://www.cbpp.org/cms/index.cfm?fa=view&id=2908)

[4] For this case in more detail, see Bernie Sanders, "Deficit Reduction Requires Shared Sacrifice,", posted on The Huffington Post March 13, 2011: available at http://www.huffingtonpost.com/rep-bernie-sanders/a-time-for-shared-sacrifi_b_835166.html

[5] For this and relevant data, see Michael Greenstone and Adam Looney, Have Earnings Actually Declined? Posted on Brookings Up Front Blog, March 7, 2011: available at http://www.brookings.edu/opinions/2011/0304_jobs_greenstone_looney.aspx

[6] On the contrary, "the nondefense discretionary spending now under attack by conservatives is not responsible for the rise of budget deficits in recent years. Between 2008 and 2011, when the cumulative deficits rose by $4.1 trillion, CBO's estimates for the discretionary budget have been revised upwards by only $400 billion, or about 9.9% of the total fiscal deterioration." (Andrew Fieldhouse, Budgeting tradeoffs," Economic Policy Institute, March 8, 2011: available at http://www.epi.org/analysis_and_opinion/entry/budgeting_tradeoffs/)

[7] Josh Bivens and Anna Turner, Putting Public Debt in Context, EPI Briefing Paper #272, August 3, 2010, available at http://www.epi.org/publications/entry/putting_public_debt_in_context/

[8] Focusing especially on programs designed to bend the curve of rising health care costs - the major long-term escalator of public expenditure.

[9] For details, see http://www.davidcoates.net/2011/02/13/obama-and-housing-%E2%80%93-is-anybody-home/

[10] See, for example, http://www.americanprogress.org/issues/2010/11/snapshot112210.html

[11] For the argument, see http://www.davidcoates.net/2010/07/18/the-inmates-and-the-asylum-the-madness-of-cutting-deficits-in-the-depth-of-a-recession/

[12] . On any sane estimate, as much as 86% of the shortfall in UK public revenues in 2009-10 was due to the lack of economic growth. (These figures from Professor Colin Hay at the University of Sheffield) The UK, after all, is not fighting three full overseas wars. So their excuse for brutal spending cuts is even less legitimate than ours. For details of the cuts' adverse consequences, see Philip Inman, "Outlook for family finances bleakest for two years, survey shows,", Jessica Sheppard, 'Teachers under threat as schools prepare to cut staff by up to a fifth," and Polly Toynbee, 'As the slump hits home, George Osborne budgets for decay," in The Guardian, March 14, 2011 (Inman) & March 21, 2011 (Sheppard and Toynbee).

[13] See Eileen Appelbaum, Cutting Spending In this Disasterous Recession Is Just Another Way of Assaulting Working America, posted on Alternet, March 14, 2011: available at http://www.alternet.org/economy/150237/cutting_spending_in_this_disastrous_recession_is_just_another_way_of_assaulting_working_america?page=3

[14] For that rebuttal, see the EPI report on Minnesota public sector workers, available at http://www.epi.org/newsroom/press-entry/news_from_epi_minnesota_public-sector_workers_undercompensated

[15] For details, see Amanda Terkel, "Vice President Biden Fires Up Union Activists," posted on The Huffington Post, March 17, 2011: available at http://www.huffingtonpost.com/2011/03/17/biden-union-barbarians-labor_n_837346.html

[16] Robert Reich is also worried, and rightly so. He is worried that the Republican leadership continues to lie about jobs - falsely claiming that cutting the deficit will create jobs when in truth such cutting will likely reduce their number. But what worries him almost as much - and me too - "is the silence of President Obama and other Democratic leaders in the face of' these lies. As he put it on Wednesday's Huffington Post, "Obama has the bully pulpit. Republicans don't. But if he doesn't use it, the Republicans big lie gains credibility." (Robert Reich, "The Republicans' Big Lies About Jobs (And Why Obama Must Repudiate Them)", The Huffington Post, March 23 2011, available at: http://www.huffingtonpost.com/robert-reich/the-republicans-big-lies-_b_839341.html)

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.