Budget Deficit Disorder
Seems the Republican leadership is suffering from a serious sickness. We outline the symptoms, complications and treatment for their chronic loss of fiscal discipline.
By Michael Powers, George Washington University
Tuesday October 11, 2005
After almost five years of close observation, it is apparent that President Bush and his right-wing allies in Congress suffer from a condition commonly referred to as Budget Deficit Disorder.
 Disease
Budget Deficit Disorder is a chronic condition which causes its victims to lose their sense of fiscal discipline. At its most advanced stage, sufferers truly believe that they can spend drastically more money than they have with no ill consequences. This illogical behavior is illustrated by Vice President Cheney’s statement to then Secretary of the Treasury Paul O’Neill that “ deficits don’t matter.” As a result, the afflicted often seek to reduce revenue at its largest source, while concurrently spending huge sums of money. The foreseeable result is an enormous budget deficit. These deficits can take the malignant form of higher interest rates and higher levels of foreign borrowing, ultimately leading to lethargic growth and distorted spending priorities.
Since coming into office, the Bush administration, aided by the Republican leadership in Congress, has displayed just such behavior. It has reduced government revenue as a percentage of GDP to the lowest level in 45 years, while approving mind-boggling amounts of new spending. From 2001 to 2004, Bush cut taxes by $648 billion, of which $191.1 billion (29 percent) went to the richest 1 percent, while only $107.9 billion (17 percent) went to the 60 percent of Americans with low and moderate incomes. Concurrently, the administration has spent $206 billion on the open-ended war in Iraq, $409 billion over 10 years for the Medicare Prescription Drug benefit, and has authorized the spending of $62 billion to date for recovery in the wake of Hurricane Katrina, a number estimated to reach $200 billion.
Not surprisingly, the federal budget deficit was projected to reach $331 billion in 2005 and $1.6 trillion over five years well before Hurricane Katrina blew into the Gulf Coast. While the president has pledged to halve the budget deficit in five years, his statements must be taken within the context of his disease. Consider this: while claiming to cut the budget deficit, Bush continues to push for the use of private accounts in Social Security, a plan estimated to add $1.4 trillion in debt over its first 10 years.
Symptoms
Obsessive desire to cut taxes for millionaires
In the wake of a natural disaster that exposed the abject poverty that still plagues millions throughout the country, our right-wing leadership is determined to keep cutting taxes for the wealthiest Americans. Not two days after Hurricane Katrina left thousands of those in poverty with no house, no job, and certainly no multi-million dollar estate, Senate Majority Leader Bill Frist vowed to go forward with a vote to permanently repeal the estate tax. Not long after, President Bush and Speaker of the House Dennis Hastert followed suit, insisting that the vast amount of federal spending needed to provide relief and recovery should not prevent the extension of tax cuts on capital gains and dividends.
To review, repealing the estate tax would:
- Reduce government revenue by $745 billion over 10 years
- Benefit fewer than 19,000 estates
- In 2004, only estates larger than $1.5 million (or $3 million for a married couple) were subject to the estate tax – and the first $1.5 million is tax free to the heirs of these multi-millionaires.
- Provide tax relief only to the wealthy
- 99 percent of all estate taxes were paid by individuals whose incomes were in the top 5 percent
Extending capital gains and dividend tax cuts would:
- Reduce government revenue by $160 billion over 10 years
- Provide little or no relief to most Americans
- Individuals making $75,000 or less a year would receive an average tax cut of $13
- Disproportionately benefit the wealthy
Overall, extending Bush’s major income tax changes would cost $1.5 trillion over 10 years, drastically reducing federal revenue.
Inability to cut pork from federal budget
While tax cuts for millionaires reduce needed revenue, wasteful spending misappropriates government spending. Despite President Bush’s alleged commitment to reducing the amount of pork in the federal budget, the total number of earmarks in the federal budget has increased from 4,000 in the year 2000 to 14,000 in 2005. Recently, Bush proudly signed into law a transportation bill laden with over 6,000 earmarks worth $24 billion. For comparison, President Reagan vetoed a transportation bill in 1972 because it contained 152 earmarks.
House Majority Leader Tom DeLay defended the spending, claiming that after 11 years of Republican leadership there was simply no more fat to cut from the federal budget.
Selected government pork:
- $223 million “Bridge to Nowhere” – bridge in Alaska that connects a town of 14,000 to an island of 50 people, for which there is already a ferry
- $3 million for a documentary film about Alaska , the subject of which is how Alaska is spending money on its highways
- $8.5 billion in handouts to the oil and gas industry
- $9.6 billion to buy out 10 years of quotas for Big Tobacco
Despite having “cut the fat” from the federal budget, the 11 years of Republican congressional control have seen pork-barrel spending increase from $10 billion to $27.3 billion. Quite clearly the shrinking government revenue has not inhibited federal spending. More observation is required to determine whether the statements made by those suffering from Budget Deficit Disorder are caused by sheer dementia or a complete incapacity to distinguish wasteful from productive government spending.
Complications
Many who suffer from Budget Deficit Disorder are in extreme denial of their disorder. Rather than admit the problem, they try to self-medicate. However, constrained both by their need to cut taxes for the rich and their inability to cut pork from the federal budget, they have few options. In some instances, victims resort to wantonly cutting federal services. These acts of desperation designed to save a few billion here and there do not address the fundamental problem of the budget deficit and can have disastrous effects on the most vulnerable in society.
Irrational Spending Cuts
Even before Hurricane Katrina stuck, President Bush sought to reduce the budget deficit by cutting $35 billion from Medicaid, food stamps and other federal benefits programs over the next five years. In the wake of Katrina, thousands of low-income individuals face increased barriers to obtaining necessities such as food and health care as they attempt to rebuild their lives. Despite this, administration officials still favor cutting these programs that benefit those most in need of aid, while spending $70 billion on new tax cuts for the wealthy. A group of congressional Republicans have called for cutting an additional $235 billion from Medicaid.
Prognosis
If left untreated, Budget Deficit Disorder could spread throughout the economy. A large and growing budget deficit can cause an inflammation of interest rates and foreign borrowing that results in constriction of economic growth, loss of new investment, difficulty obtaining mortgages, and an overall distortion of spending priorities.
As the government continues to spend more than it has, it must borrow more and more money to cover its debt. The government must then appropriate a portion of tax dollars to pay the interest on this debt, much of which is paid to foreign governments. For example, repealing the estate tax would cost the government an estimated $225 billion over 10 years just to pay the interest on the increased debt. This money can no longer be invested in schools, health care, Social Security, national security, and a host of other vital programs.
Also, increased government borrowing can lead to higher interest rates. In turn, higher interest rates make obtaining a mortgage or loan more expensive. While this may mean little to the beneficiaries of Bush’s tax cuts, the added cost is significant for low- and moderate-income individuals seeking to buy a home or start a small business.
Ultimately, the government is financing tax breaks for the wealthiest Americans by borrowing money from foreign countries. The burden of paying the interest on this borrowing is shifted onto future generations and low- and moderate-income individuals.
Treatment
While there is no cure for Budget Deficit Disorder at the individual level, there are steps that can be taken to prevent the disease from infecting the broader economy. Regrettably, Budget Deficit Disorder causes irreparable damage to the region of the brain that governs all fiscal matters. However, those who possess a healthy sense of fiscal discipline can mitigate the effects of the illness by demanding the implementation of common sense reforms capable of reducing the budget deficit, such as
- Defeating the proposed $70 billion in new tax cuts
- Preserving the estate tax
- Reversing capital gains and dividend rate reductions for those making over $1 million a year
- Redirecting 50 percent of the earmarks in the recently passed transportation bill to Hurricane Katrina recovery efforts
Budget Deficit Disorder is a serious disease with potentially horrendous implications for the economy. Until a cure is found, it is imperative that the disease’s effects be contained. The reforms suggested would generate more federal revenue to support rebuilding New Orleans, the Medicare Prescription Drug benefit, Medicaid, and a host of other services, many of which target those who are most in need of help. As such, this reform package would reduce the budget deficit and help alleviate the economic ills associated with it.
Illustration: Matt Bors
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