A Chronic Budget Crisis

While reading on the federal budget, I found myself getting a bit frustrated thinking about how current leaders and their political squabbles are ruining this country. Our generation really needs to ask itself, "How long before we can turn our deficit into a surplus, how long will we be able to manage a surplus that can pay down what is approaching $20 trillion in debt, and is that even possible in our lifetime?"

Here is a site that looks at causes and consequences of today's debt.

Many think tanks and many economists have thrown their hat in the ring trying to answer these questions. Any solution includes some combination either raising taxes or cutting spending. With the imminent increase in retirees from the baby-boomer generation, no doubt many are growing nervous (if they are not already) that mandatory spending is going to suffocate our economy in the long-term. Some look to rising income and wealth inequality and suggest that if economic elite start to pay their "fair share in taxes," then we can push the problem off. Some take an approach acknowledging both sides of that discussion: we need to take a serious look at entitlement reform and simultaneously increase taxes on the wealthy and close the senseless loopholes that make our tax code look like swiss cheese.

The following summary findings come from an Economic Policy Institute (EPI) report that I thought was relevant to our class readings, as it addresses deficit and debt problem and includes an application of the politicized budget process we are studying.

The principal findings are:

• Our genuinely pressing spending problem is a decline in spending on public investments relative to our needs, which can reduce future economic growth and contribute to growing inequality.
• The nation is considerably richer today than it was 50 years ago, and it is expected that significant growth in income and wealth will continue for the foreseeable future. There is nothing about current spending commitments that are “unaffordable” relative to the projected income generation of coming decades. Instead, these spending commitments are only “unaffordable” given current political choices about how much revenue to raise.
• At the same time that income and wealth have been growing, the distribution of income and wealth has become more unequal—the richest 1 percent receives a growing share of income and owns a growing share of wealth. This is a challenge for distributing the fruits of economic growth, and could also pose a political barrier to raising sufficient revenue for future spending needs.
• There are several ways to increase tax revenues needed for public investment and strengthening the social insurance system by both broadening the federal tax base and raising tax rates. Examples include reducing the gap in tax rates between labor and capital incomes, limiting the value of tax expenditures, closing loopholes in the corporate income tax code, or even introducing new revenue sources like a wealth tax or a value-added tax. To be clear, not all of these solutions are equally desirable, but the scope for revenue increases is much larger than recognized in conventional budget debates.

http://www.epi.org/publication/lets-face-it-were-far-from-broke-americas-real-spending-problem-and-how-to-fix-it/