That we as a nation, are carrying an “unsustainable debt” isn’t even arguable. The president has said so in no uncertain terms (see “The Looming Debt Ceiling Fight”), and both parties agree. Since deficit spending in any given budget cycle adds to the debt, it follows that the first step in starting to pay down the national debt would involve ending each budget cycle with a surplus which would then be turned over to our lenders and thus, shrink what we owe them. The problem with getting to a surplus, is that we can’t even arrive at a balanced budget where all our spending outlays are equaled by revenues .
The blame for our continuing to spend more than we take it, can credibly be assigned to both parties, though not evenly. When they are in the majority, Congressional Democrats have too often spent more than they raised in taxes with a deficit resulting. But, since the increased revenues through taxation helps pay for at least some of the over-spending, the deficits for which the Democrats are responsible tend to be smaller. In turn, smaller deficits mean that we pay less interest to our lenders. In contrast, Congressional Republicans have, for much of the last 30 years, engaged in a steady pattern of cutting taxes without cutting spending. This meant that with outlays at or above the same levels, there was less money to cover those costs because revenues in the former of taxes had been lowered. The result was that when Congress was controlled by the GOP, deficits tended to be larger which meant that higher borrowing costs developed because of bigger interest payments.
Given this history, how do we as a nation move progressively towards a balanced budget and then surpluses? It would seem to be a straightforward matter of Congress spending no more than it takes it. Unfortunately, it’s just not that simple. That is because we already have on the books, costly programs like national defense, Social Security and Medicare/Medicaid. At the same time, the GOP, which controls the House, has an appetite for cutting taxes. In this context, how do we arrive at a balance when we have expensive commitments on the one hand, but seek to take in less revenues on the other? To further complicate matters, with the economy still struggling to come out of the 2008 recession, taking huge sums of money out of circulation by cutting government spending and raising taxes are the worst possible steps we could take, and every reputable economist in sight has said so. To do otherwise would invite a reversal of our ongoing, albeit sluggish recovery.
There is a way forward, but it will require patience, evenly distributed sacrifice, and shared pain. With each budget cycle, Congress must seek to create progressively smaller deficits. That means that the difference between outlays and revenues (taxes) must steadily diminish until equilibrium is reached. Broadly speaking, this could mean that there will be cost-cutting in defense, and cost-savings achieved through reforms of social safety net programs, combined with increases in taxes on corporate profits, capital gains and personal income. None of this can be done “willy-nilly” or with a heavy hand. Rather, a deft, surgical approach is required.
Fortunately, there may be reason to be hopeful. The recent “fiscal cliffs” deal reached between Congress and the president contained a start towards this sort of careful budgeting; i.e. taxes will be raised only on personal earnings over $400,000, with $60 billion in spending cuts across each of the next 10 years. The current fight over raising the debt ceiling is likely to produce more of the same. What we must not have is austerity in the form of draconian spending cuts. Europe tried that to combat their recession and it just made matters worse. Therefore, the outcome of current negotiations between Congress and the president will, in the next six months, determine if we are truly committed to getting our fiscal house in order and avoid falling back into a recession.