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Why the US budget deficit is so large

Here it is in terms any Republican or Democrat can understand, courtesy of Congressional Budget Office director Doug Elmendorf (via Ezra Klein):

The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.

7 Comments

  1. This is especially noticeable in California.

  2. That’s a great link! Thanks!

    I would add that having 535 Senators and Representatives all promising to bring home more federal dollars than their constituents send in taxes doesn’t help at all.

  3. It’s interesting that the area he specifically calls out, benefits for older Americans, is precisely wrong. The 2 largest senior benefits programs, SS and Medicare, have separate tax streams, and they’ve been taking in more revenue than they’ve been paying out for over 20 years now.

    The area where willingness to pay taxes and the expected level of ‘service’ diverge most widely in the US is actually military spending. We’ve doubled our military spending in the last 8 years with only tax cuts to pay for it, and our debt skyrocketed similarly during WW2 and our military build-up in the 80s. Conversely, during the Vietnam War, the US instituted a 10% income tax surtax to prevent going deeper into debt, and public support for the war cratered.

  4. The entitlement programs for seniors take in more revenue than they spend right now, but that will not be the case for a lot longer. If the US government were a corporation, it would be required to put its future revenue streams and future liabilities on the books, and our books would look pretty bad in that light due to growth in health care costs.

  5. But again, it’s Medicare that has that problem, not Social Security. Social Security is pretty much on-track, and if it needs any help it’ll be minor.

    Medicare’s problem is the same as everyone else’s problem with healthcare costs – they are projected to keep rising at rates that are plainly unsustainable. So the enormous hole in the budget for Medicare is a bit like saying – mid housing boom – that if current trends continue by 2050 everyone will be spending 90% of their income on housing. Well that would illustrate a problem, but it’s not an outcome that can probably occur without the economy imploding.

    The big, big holes in the budget are unfunded military adventures, the aftermath of Bush’s tax cuts, and lately the bailouts and stimulus, which at least are temporary measures.

    The thing to keep in mind is that America would have no problem raising revenue to fund all the obligations it currently has, including the military at, what, $600bn per year? It just needs to raise taxes a little to do so. The supply-side claim that doing so will cause the economy to fail is a load of crap, as the experience of the 50s, 60s, and 90s prove quite firmly.

    The American economy is stupendously enormous and tax rates here are relatively low, even by historical American standards. The “feeling of poorness” has a lot more to do with stagnant wages & unemployment than it does with overall economic productivity and income. There’s plenty of income in this country.

    At some point the Democrats are going to realize that they can win elections by raising taxes on the rich, balancing the budget, and increasing spending on socially-useful programs – without actually losing any of their support, who for the most part aren’t touched by these taxes. In fact the HCR bill already does some of this. The Reagan craziness – that by reducing taxes on the rich everyone will benefit – is a proven failure and the news is getting out.

  6. You’re right of course about the prescription and I hope you’re right about the politics.

  7. Rafe, Social Security is getting hammered by the recession. Fewer payroll taxes and more folks taking early retirement. It tipped over into the red a few months ago (though still had a surplus for FY09). It is expected to run a deficit for FY10 and if jobs come back will return to black for F11 for a few years before rolling over into the red permanently.

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