The recent failure of the congressional ‘supercommittee’ is yet another addition to the already long list of reasons why Congress’ approval rating is hovering around 9 percent. By the way, things that are more popular than Congress include, but are not limited to: the Iraq war, polygamy, communism, pornography (is that really a surprise?) and the BP oil spill. In any case, this failure to find a compromise will trigger $1.2 trillion in automatic budget cuts over the next 10 years, split roughly evenly between defense and Medicare. The supercommittee’s failure is a symptom of the real problem in Congress: the unwillingness of both sides to compromise.
Actually, balancing the country’s budget will require both parties to agree on two issues they currently don’t agree on at all. First, Democrats need to be open to entitlement reforms. It doesn’t take a genius to look at budget projections and see that spending on entitlement programs like Medicare, Medicaid and Social Security is unsustainable – and growing. As America undergoes a demographic shift, with baby boomers retiring in droves, there simply aren’t enough working Americans to support current levels of entitlement payouts. For the time being, Democrats are avoiding the subject of entitlement reform. From a political perspective, this makes sense. Being able to portray themselves as defenders of Medicare and Social Security helps Democrats attract the senior citizen vote, something they have historically struggled with. However, it’s bad policy, and it’s bad for the country. To truly address the deficit, entitlements will have to change. This will be neither easy nor popular, but it has to happen.
Democrats aren’t the only ones at fault. The second thing that needs to happen to close the gap in the budget is for Republicans to put tax increases back on the table. It simply is not realistic to expect to close a $1.3 trillion deficit each year solely by cutting expenditures. Despite what some Republicans might say, much of what the government does is good and actually necessary for the country to flourish. By signing Grover Norquist’s pledge to vote against any tax increase, Republicans are making it nearly impossible to balance the budget. The good news for Republicans is that increasing taxes doesn’t necessarily have to come in the form of increased tax rates. By closing loopholes, a significant amount of revenue could be raised without actually increasing the tax rate. This is also an excellent opportunity to reform the tax system, making it more efficient and streamlined.
Besides figuring out what needs to be done, there is also the question of when to do it. Those calling for immediate austerity are simply wrong. In the midst of a nascent recovery, the last thing the world economy needs is for the United States to adopt a contractional fiscal policy. If the situation in Europe doesn’t do it, immediately balancing the United States’ budget will go a long way toward pushing the economy back into recession. Thus, closing the gap in the budget right now is not only a poor option, but a dangerous one. Instead, the government needs to lay out a credible plan that involves further short-run stimulus, medium-term deficit reduction, and a long-term balanced budget. By continuing to stimulate the economy in the immediate future, the government will help spur further economic growth (and avoid another recession.) This will actually help reduce the deficit in the long run because a stronger economy leads to increased tax revenues. Once the immediate danger of a double-dip recession has passed, it will be time to start closing the deficit. It’s also important that the deficit reduction happens gradually, not all at once. If the budget is balanced all in the same year, this shock could pose a significant risk to the economy. Thus, after a period of deficit reduction in the medium-term, the budget will be balanced in the long-term. And it should stay that way.
Like much of the developed world, the United States has dug itself quite the hole. Digging its way out will be a difficult and drawn out process, but it must happen. Luckily, closing the deficit need not bring down the economy with it – if it’s done correctly. The real issue now is whether or not Congress can come together to do what’s best for the country.
Joe Timmerman ([email protected]) is a freshman intending to major in economics and math.