Allan C. Brownfeld
Allan C. Brownfeld is the author of five books, the latest of which is The Revolution Lobby (Council for Inter-American Security). He has been a staff aide to a U.S. Vice President, Members of Congress, and the U.S. Senate Internal Security Subcommittee. He is associate editor of The Lincoln Review, and a contributing editor to Human Events, The St. Croix Review, and The Washington Report on Middle East Affairs.
The "Fiscal Cliff" - and the Continuing Refusal to Face Our Real Financial Dilemma
On the brink of the so-called "fiscal cliff," the House voted 257-167 to approve the Senate bill that would avoid major tax hikes and spending cuts. In response, the stock market soared. What went largely unremarked was the fact that neither Republicans nor Democrats made any effort to confront the real financial challenges that lie ahead. As we seem repeatedly to say when it comes to Congress dealing with the problems facing the nation, "they kicked the can down the road."
What we face - and no one in Washington seems prepared to confront - are massive structural deficits as the baby boomers start to retire in large numbers.
In 1900, 1 in 25 Americans was over the age of 65. In 2030, 17 years from now, 1 in 5 Americans will be over 65. Because we have many programs that provide guaranteed benefits to the elderly, this has major budgetary implications.
In 1960, there were about five working Americans for every retiree. By 2025, there will be just over two workers per retiree. In 1975, Social Security, Medicare and Medicaid made up 25 percent of federal spending. Today, they add up to 40 percent. Within a decade, these programs will take over half of all federal outlays.
We have postponed the problem by borrowing heavily for decades. Our debt stands at 100 percent of GDP. Federal spending on everything other than entitlements, defense, and interest on the debt has been shrinking for many years. A recent report from the National Governors, Association points out that Medicaid is now the single largest item on state budgets and has grown by over 20 percent for each of the past two years.
This trend is escalating. The Peter G. Peterson Foundation calculates, using Congressional Budget Office numbers, that by 2040 we are likely to spend 10 percent of the GDP on interest payments alone - versus 1.4 percent today.
Congress and President Obama set up the artificial "fiscal cliff" scenario that would, allegedly, force them to do the right thing. Completely ignored, however, were the deep structural reforms that will eventually be needed.
Casting the budget problem as a question of whether the richest 1 or 2 percent of the population should pay more taxes is avoiding the real issues before us. The real problem we face is the bipartisan promises made to Americans of both high government benefits and low taxes at the same time. This may be democracy at work. Most Americans may want high benefits and low taxes. No one in Washington seems prepared to tell them the hard truth - that we cannot afford benefits we are unwilling to pay for.
The nonpartisan Congressional Budget Office puts it this way:
With the population aging and healthcare costs per person likely to keep growing faster than the economy, the U.S. cannot sustain the federal spending programs that are now in place with the federal taxes as a share of GDP that it has been accustomed to paying.
Washington Post columnist Robert Samuelson faults both parties for the situation we face:
The main reason that we keep having these destructive and inconclusive budget confrontations is not simply that many Republicans have been intransigent on taxes. The larger cause is that Obama refuses to concede that Social Security, Medicare and Medicaid are driving future spending and deficits. So when Republicans make concessions on taxes (as they have), they get little in return. . . . Just as many Republicans don't want to raise taxes a penny, many Democrats don't want benefits cut a penny.
One reasonable example is the proposal to shift the standard consumer price index (CPI) to a "chained" CPI to adjust Social Security benefits. From 2013 to 2022, this change is estimated to reduce Social Security spending by $100 billion. Over that decade, total Social Security benefits are estimated at trillions, but the cut would be a tiny percentage. Yet, Democrats in Congress rejected any serious consideration of this proposal.
As the population ages and health care costs soar, to avoid the country sinking into debilitating debt, revenue must rise and spending - particularly on Medicare, Social Security. Medicaid and military healthcare - must be brought under control. No solution that pleases extremists on either side - those who reject any increase in revenue and those who oppose any decrease in benefits - has, at this time, any chance of becoming law.
One thoughtful member of Congress, Senator Michael Bennett (D-CO) voted against the "fiscal cliff" deal because it did not have any meaningful deficit reduction. He said:
Going over the cliff is a lousy choice and continuing to ignore the fiscal realities that we face is a lousy choice. . . . The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same. I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn't accrue, you might be surprised at how far we can move this conversation.
Senator Bennet laments that:
Washington politics no longer follows the example of our parents and our grandparents who saw as their first job creating more opportunities, not less, for the people who came after them. . . . The political debate now is a zero sum game that creates more problems than solutions.
Unfortunately, things will probably have to get worse than they are at the present time before either Democrats or Republicans will begin to make the hard decisions necessary to set our society on a sustainable economic path for the future. Real leadership is hard to discover in today's Washington.
The Founding Fathers Would Be Disappointed with Contemporary Government, But They Wouldn't Be Surprised
The fact that our government is increasingly out of control is becoming clear to more and more Americans. We continue to embark upon huge new public programs that, regardless of whether one agrees or disagrees with their merits, we refuse to pay for. How long can any society continue to spend well beyond its means without dire consequences? Eventually, if things continue on their present trajectory, we will see.
The tendency to spend without raising funds to pay the bills continues whichever party is in power. Current discussion of a "fiscal cliff" does not confront the reality of politicians of both parties busy subsidizing the variety of special interest groups from which they raise money to attain office. As many have said, "We have the best Congress money can buy."
The Founding Fathers, if they suddenly arrived in contemporary America, would be disappointed with what they saw. But it is unlikely that they would be surprised. They were, after all, thoughtful students of human nature, and how it influences the nature of the government under which we live.
Many things have changed in society. The Framers of the Constitution could never have foreseen the creation of automobiles, airplanes, television, computers, cell phones and other elements of our modern life. But while things around us have undergone dramatic change, what has remained the same is man himself.
Human nature, for better or worse, is unchanged. If this were not true, we could not, in the 21st century, identify with the writings of Plato or Aristotle, or the characters in Shakespeare. The teachings of Moses and Jesus are as relevant to modern man as they ever were.
The Founding Fathers were not utopians. They understood man's nature. They attempted to form a government that was consistent with, not contrary to, that nature. Alexander Hamilton pointed out that:
Here we have already seen enough of the fallacy and extravagance of those idle theories that have amused us with promises of an exemption from the imperfections, weaknesses, and evils incident to society in every shape. Is it not time to awake from the deceitful dream of a golden age, and to adopt as a practical maxim for the direction of our political conduct that we, as well as the other inhabitants of the globe, are yet remote from the happy empire of perfect wisdom and perfect virtue?
Rather than viewing man and government in positive terms, the framers of the Constitution had almost precisely the opposite view. John Adams declared that, "Whoever would found a state and make proper laws for the government of it must presume that all men are bad by nature." As if speaking to those who place ultimate faith in egalitarian democracy, Adams attempted to learn something from the pages of history.
We may appeal to every page of history we have hitherto turned over, for proofs irrefragable, that the people, when they have been unchecked, have been as unjust, tyrannical, brutal, barbarous and cruel as any king or senate possessed of uncontrollable power. . . . All projects of government, formed upon a supposition of continued vigilance, sagacity, and virtue, firmness of the people when possessed of the exercise of supreme power, are cheats and delusions. . . . The fundamental article of my political creed is that despotism, or unlimited sovereignty, or absolute power, is the same in a majority of a popular assembly, an aristocratic council, an oligarchical junto, and a single emperor. Equally bloody, arbitrary, cruel, and in every respect diabolical.
That government should be clearly limited and that power is a corrupting force was the essential perception of the men who made the nation. In The Federalist Papers, James Madison wrote:
It may be a reflection on human nature that such devices should be necessary to control the abuses of government. But what is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed, and in the next place oblige it to control itself.
Yes, if the Founding Fathers arrived in Washington tomorrow, they would be disappointed - but they would not be surprised.
Politicians - of Both Parties - Talk About Reducing the Debt, but No One Seems Willing to Do What Is Necessary to Do So
The official national debt of $16 trillion is growing at the rate of $4 billion a day. This, together with what the government owes its various trust funds, is more than 100 percent of gross domestic product. The state's debts are about $3 trillion, and their unfunded liabilities are approximately another $4 trillion. "Debts of this magnitude," says Michael Greve, a scholar at the American Enterprise Institute, "will not be paid. . . . Our politics aims at inspiration on the cheap.''
Senator Tom Coburn (R-OK), one of the few members of Congress who appears serious about cutting unnecessary spending, points out that for the past two years the Government Accountability Office (GAO) has shown Congress more than $200 billion in duplicative spending alone. There are, for example, 47 job-training programs across nine agencies that cost $18 billion but are not producing results. GAO found dozens of other areas of costly duplication that if streamlined could improve outcomes while saving money.
GAO identified 209 federal Science, Technology, Engineering, and Mathematics (STEM) programs run by 13 federal agencies, costing taxpayers more than $3 billion annually. According to Sen. Coburn:
Duplication is only part of the problem. Our budget is full of outrageous examples of waste and mismanagement. For instance, our government has borrowed $20 million from future generations in order to send millionaires unemployment checks. Funds meant to help agencies coordinate intelligence and counterterrorism efforts at the Department of Homeland Security "fusion centers" have been spent on flat-screen TVs, SUVs for personal use, and intelligence that has been described as useless and irrelevant. What Washington is lacking is not options for savings but the political courage to make specific decisions. Millions of families and individuals in America are already living in the world of hard decisions and priorities. It's long past time for Washington politicians to join them.
Often, politicians speak of cutting spending and tax breaks that, in reality, amount to savings of very little money. Mitt Romney and Big Bird is one example. And President Obama declared that, "I want to stop giving tax breaks to companies that ship jobs and factories overseas." He discussed this in his "economic patriotism" ad. Conservative columnist Timothy Carney provided this assessment:
Sounds fine, but what is he actually talking about? Not much, it turns out. One expense businesses incur is moving labor or equipment to new locations. Obama is proposing that the cost of moving facilities out of the U.S. shouldn't be deductible. Those costs should be part of the company's profits. This targeted tax penalty would raise $14 million per year, or 0.0005 percent of the federal budget, according to the Joint Committee on Taxation.
Neither party speaks of reigning in expensive government programs of subsidies for corporations or agriculture. Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, writes that:
The big winner of the three presidential debates is government spending. Mitt Romney singled out only a few small programs that he thinks are ripe for cutting. President Obama stayed away from any specifics. . . . But the present levels of spending are not an option. . . . Everything has to be on the table. . . . The bottom line is that there is no silver bullet for balancing the budget. We didn't get in this fiscal mess overnight, and it will take us some time to get out of it.
Clearly, everything should be put on the table - including the Pentagon, which consumes 18 percent of the federal budget. Thus far, however, politicians of both parties seem unwilling to consider cutting programs that have strong constituencies. At the present time, 30 cents of every dollar government spends is borrowed. With the coming explosion in programs such as Social Security, Medicare, and Medicaid - not to mention President Obama's new health care program - we will be drowning in debt.
How bad do things have to get before our politicians begin to pay real attention? Thus far, there are no good answers to this question.
One Form of Government Assistance No One Mentions: Corporate Welfare
In the past presidential campaign, there had been much discussion about those who receive one form or another of government assistance and the need to reduce such aid.
The government aid we seem to focus upon is that received by those at the lower end of the economic spectrum, such as food stamps.
While it is certainly proper to review all forms of government assistance, it is surprising that neither Republicans nor Democrats have had much - if anything - to say about corporate welfare. For politicians who have bailed out Wall Street and the auto industry - and who subsidize many others - to focus all of their attention on forms of government aid other than that for corporations tells us a great deal about how our current politics avoids the real problems we face. Perhaps it would be different if both parties were not so busy raising campaign funds from the very people they subsidize.
A recent Cato Institute study finds that federal business subsidies total almost $100 billion annually. This includes subsidies to small businesses, large corporations and industry organizations. The subsidies come from programs in many federal departments including Agriculture, Commerce, Energy, Housing, and Development. As part of the national income accounts, the Bureau of Economic Analysis calculates that the federal government handed out $57 billion in business subsidies in 2010.
A recently issued report from The Heritage Foundation by Chris Edwards and Tad DeHaven, notes that:
There are several upsides to ending federal subsidies to businesses: it would reduce the amount of money taken from taxpayers and given to big corporations; and it would reduce the incentives for political corruption. A less obvious, but no less important, reason to end corporate welfare is that an economy that doesn't depend on subsidies from government is a more entrepreneurial economy that will grow faster.
Edwards and DeHaven provide examples of the failure of government subsidization in the energy industry, with the complicity of both parties:
An early subsidy effort was the Clinch River Breeder Reactor, which was an experimental nuclear fission power plant in Oak Ridge, Tennessee, in the 1970s. This Republican-backed boondoggle cost taxpayers $1.7 billion and produced absolutely nothing in return. Then we had the Synthetic Fuels Corporation (SFC) approved by President Jimmy Carter in 1980, who called it a "keystone" of U.S. energy policy. The government sank $2 billion of taxpayer money into this scheme that funded coal gasification and other technologies before it was closed down as a failure.
More recently, the Obama administration's failures in subsidizing green energy projects are piling up - Solyndra, Raser Technologies, Ecotality, Nevada Geothermal, Beacon Power, First Solar, and Abound Solar. These subsidy recipients have either gone bankrupt or appear to be headed in that direction. The Washington Post found that, "Obama's green-technology program was infused with politics at every level."
The flow of taxpayer money to business continues to grow, whichever party is in power. A recent The New York Times article - "Ties To Obama Aided in Access for Big Utility" - documented how Exelon Corp., a Chicago-based utility, used its political support for President Obama for access and profit. Exelon was one of six utilities that received the maximum $200 million stimulus grant. It also got a $600 million renewable-energy loan guarantee for a solar project in Los Angeles. One of Exelon's subsidiaries received a $200 million grant to install "smart meters" in the Philadelphia area.
Republicans and Democrats are in this together. Sheldon Richman, a senior fellow at The Future of Freedom Foundation and editor of The Freeman, points out, with regard to Republican Vice Presidential candidate Paul Ryan that:
In the Bush years, Ryan voted for everything: No Child Left Behind (which increased the centralization of education), the Medicare drug entitlement, housing subsidies, unemployment-benefits extension, the bank bailouts, and the 2008 subsidies to failing Chrysler and GM. In voting for TARP (the Troubled Asset Relief Program), Ryan said, "Madame Speaker, this bill offends my principles, but I'm going to vote for this bill in order to preserve my principles.
William O'Keefe of the George C. Marshall Institute notes that:
"Crony capitalism," a frequently used term describing firms that seek to invest with taxpayer dollars instead of share owner dollars will not reduce unemployment, promote robust economic growth or help the United States compete in the global economy. Reform is needed shrinking the public trough, creating a level playing field, providing business confidence and providing true regulatory reform provide a good start.
Thus far, neither party has had anything to say about corporate welfare. This indicates, sadly, that neither party is serious about bringing government spending under control. It is politics as usual - just what has produced the economic morass we are now in. Americans deserve something better. Things, it seems, will have to become even worse before anyone begins to tell the truth about our problems. *