29 August 2009 Deficit Questions for Linda Bilmes
From an article titled “Linda Bilmes Offers Perspective on the Federal Deficit” on the JFK School of Government’s News & Events page:
…the deficit over the next decade is $2 trillion higher than the administration first projected. This is because long-term spending – on things like Medicare, Social Security, the Iraq and Afghanistan wars and paying interest on the debt – is still out of control. Tax revenues will go up as the economy recovers but our spending is rising at an even faster rate. There are only two ways to pay off the debt: to raise taxes or cut spending – neither of which we want to do until the recession is over.
My very humble (and potentially naive) interpretation of the situation is that raising taxes will facilitate reduced consumer spending; and that a problematic consequence of reduced consumer spending could be a decrease in demands on Chinese exports — the sale of which is the primary (or even, the only?) reason the Chinese still buy our paper. That is, the Chinese lend us money so that we’ll buy their products. But as I said, this my very humble interpretation. However, if this is the case, then my questions on this point are: What circumstances need to exist so that we can begin paying off the debt by raising taxes or cutting spending? What steps do we need to take to create these circumstances? And how long will it be before we can take these steps?
The question is whether we as a nation have the political will to take steps that will reduce long-term government expenditures, such as making changes to entitlements and cutting spending on wasteful military programs. That is why it is so important to make progress on health care reform.
What will happen if we don’t find the political will to achieve this reduction?
Unfortunately the debt problem will further exacerbate the problems in this country in terms of how we prioritize our spending. It is unlikely that we will make significant changes to the big entitlement or military spending programs. It is unlikely that we will reduce earmarks for pet projects or seriously crack down on tax fraud, war profiteering, or inflated bank bonuses. But the huge interest payments on the debt will cut into the total budget pie. So Congress will probably limit discretionary funding for programs like research into rare diseases, pure scientific research, funding for national parks and wildlife, aid to states and cities, mental health clinics, and investment in training federal workers – simply because these are the easiest things to cut.