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Sat, July 20

Column: It's time to work, not to frighten

The debt ceiling. What a mess. To fit the space, here it is in very clipped form. Some items you may know, some maybe not.

The debt ceiling is a separate issue from reducing the deficit. The GOP is using it as a way to hold the economy hostage, "Meet my demands or I'll drive us all into a tree." Raising the ceiling is about paying bills we've already incurred.

National debt is a separate problem. Having some debt is okay if the size of it, relative to the economy, is not too big. It can even grow so long as the economy is growing. Lately it has grown too fast. Why? We foolishly cut taxes too much when we were doing well, compounded by two wars we didn't pay for, the cost of medical care going up and an aging population. The crash was a triple whammy: 1. We spent a lot to avoid an even worse collapse. 2: Incomes go down and jobs are lost, so tax receipts go down. 3. The need for government assistance -- unemployment benefits, etc. -- goes up.

We are not "broke." Tax revenues are at their lowest since 1950, and everyone from the middle on down is struggling, but the total national income (GDP) is higher than it was before the crash.

How to improve things: First, stop scaring the financial markets by threatening to drive us into a tree. Some of the current problem is a temporary result of the recession. Obviously, getting the economy going is the main job. Imagine a triple whammy in reverse, the economy grows relative to the debt, people with jobs pay taxes, and there's less need for government support. Even assuming a slow recovery, a plan for getting the deficit down to a manageable level is not that hard. All of the Bush tax cuts expire in 2012 if leaders will let them, which closes a lot of the deficit.

Budget cuts need to be effective, where the cost-benefit shows a loss. Genuine fraud and abuse, inefficiencies, or optional things we don't want right now, are a loss. But cutting health support, which just sends people to the emergency room? Or cutting food inspectors, or IRS collectors, or patent processors, or a hundred other things that are a cost-benefit plus, would be bad management. The core cost of government -- non-defense, non-Medicare/Social Security -- has been going down for decades already.

A few other items, like a modest real reduction in defense spending and winding down the wars. Also ending a few tax expenditures that help where it isn't needed, like oil subsidies, mortgage interest deductions on second homes, and super-low tax rates for hedge funds. The only big item left is the cost of healthcare itself, and the only real effort to address that is the existing health law.

We could help ourselves a lot more with things like a long-term, large increase in infrastructure projects, and anything to create near-term jobs. A program to insulate schools all over the country is one suggestion. Cutting taxes to encourage jobs won't work. Small businesses don't have enough demand. Major corporations are already sitting on record amounts of cash. What's needed is money in the hands of people who will spend it, by giving them jobs that need doing anyway. Supplementing state budgets so they lay off fewer people would also help.

The Republican House recently voted for Cut, Cap, and Balance which requires a balanced budget. Nations are not like families or businesses or even states. Nations have their own currency and can create more money, and have the ability to borrow from their own people and around the world. There are practical limits, but these tools are basic at the right times. After the last Great Depression it was New Deal stimulus and eventually war spending that successfully pulled us out. The war was basically a big government program. It was all done on deficit spending. To not allow that option would harm the country. Even the Ryan budget plan called for deficit spending until 2040. In the '90s we got to a budget surplus, by raising taxes and by growing the economy.

Reasonable budget negotiations would try for some mix of cuts and revenue (taxes and closed loopholes). Obama started off already most of the way toward the Republicans, offering $3 of cuts for every $1 of revenue. He's currently retreated to a possible plan that has no revenue, some cuts, and a hard trigger to force another round in the near future. The Republicans, racing toward the tree, won't even accept that.

Summing up: Medical expenses are a big problem, but the existing law is the only serious attempt at it. Cushioning the crash was expensive, but past tense. The core cost of government has been declining. Taxes are lower and less progressive than in the past. Jobs are needed, the private sector isn't creating them and cutting government jobs hurts. Yet the claim of Kamikaze Republicans is that government is out of control and taxes are high and so right now we should spook the recovery, and lay a lot of people off and slow the recovery.

Tom Cantlon is a longtime local resident, business owner and writer. Contact him at


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