Budgets, Deficits, and Hypocrites

The Obama Administration unveiled its FY2011 budget proposal on Monday. It clocks in at a record $3.8 trillion in expenditures, with a record $1.6 trillion deficit.

The Obama Administration has a difficult hand to play. In similar ways, the Clinton Administration took office in 1993 amidst (what were then) record peacetime deficits, largely caused by profligate defense spending and extravagant tax cuts for the wealthiest Americans during the Reagan and Bush I years. The ambitious domestic agenda that Clinton campaigned on was largely curtailed as the Administration chose to pursue a strategy of deficit reductions. That strategy ultimately resulted in a budgetary surplus of over $200 billion by the end of Clinton's 2nd term.

But the subsequent surpluses that were projected into the near and mid-term future never materialized as the incoming Bush II Administration pursued a series of policies that turned a sizable surplus into persistent and record deficits. Arguably the Clinton administration's largest economic achievement--turning record deficits into surpluses--was all for naught. The Republicans passed massive tax cuts--mostly for the wealthiest Americans--in 2001 and then again in 2003 (for good measure); engaged in two foreign wars, as well as the so-called war on terror, with borrowed funds; and passed a Medicare prescription drug program that locked in high rates, significantly benefiting the pharmaceutical industry. Before Obama set foot in the White House in 2009, much of projected deficits for the foreseeable future were locked in by Bush-era policies.

And this is all prior to the deficit-growing effects of a financial crisis and major recession. A recession has two automatic effects on budget deficits: decreasing tax revenues due to decreased income (wealth) and the automatic stabilizing effects of unemployment insurance and Medicaid funding. Add to this the very necessary--and transitory--TARP and stimulus programs, which were the lifeblood of a collapsing financial sector and economy, respectively.

This is the story of our short-term budgetary deficits. Obama is hardly to blame. In many ways he--and his ambitious agenda--is a victim of the budgetary environment in which he rose to power. For a visual, above is a graph from the independent Center on Budget and Policy Priorities, detailing the major contributors to current (and future projected) deficits.

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So this is the situation we find ourselves in: Much of the deficit is inherited from ill-advised Bush-era policies, much of the rest is due to either the structural effects of recession or the Keynesian necessity to use government spending to boost a recessionary economy.

Republicans have been highly critical in general of the incumbent Democrats, but particularly with regard to the budget and deficits. You see, Republicans believe it's appropriate when they run up huge deficits and then pass on those deficits to the incoming Democratic administration. But, as was the case in 1993, years of Republican profligacy handcuffs the Democrats once they finally take power. It's tragic, but true. The years of Republican rule lead to huge deficits and an overall ballooning of the national debt. But as soon as Democrats take power, Republicans sound the siren call for fiscal retrenchment: "No, we can't afford such and such new social policy. We need to focus on reducing the deficit and the size of government." Oh, now we do, do we?

So what happens is the Republicans are allowed to have it both ways. They govern like a drunken sailor, and then campaign against the the government's fiscal irresponsibility once the Democrats are in power. But when asked how they would reduce the deficit, Republicans resort to talking points, mainly their answer for just about every problem: cut taxes. You may be asking yourself: How does one reduce the deficit by cutting taxes? And you'd be asking a very good question, one for which, I'm afraid, there is no answer based in reality. Indeed, Republicans like to highlight the deficit when it is politically expedient, but when presented with an opportunity to deal with the issue, they oppose the measure.

Consider this: When presented with voting on the establishment of a bipartisan deficit commission--which would be responsible for offering specific recommendations to reduce the deficit and would then be presented to Congress for an up-or-down vote--Republicans, including their leadership, largely voted against the creation of the commission. The same can be said of Health Care reform. The Democratic plans establish various cost controls, as well as cuts to wasteful Medicare spending in an effort to slow the growth trajectory of health care. In the long term, it is rising health care costs that are putting the largest strain on the budget, via Medicare and Medicaid. But instead of working with Democrats on reform measures that will reduce the cost of health care, and thereby reduce future budget deficit projections, the Republicans have politicized the entire effort, misrepresenting reform as rationing and "death panels".

And this leads to another very important reality: when the budget has become so politicized, how are we going to effectively address its challenges?