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http://politics.nytimes.com/congress/votes/111/house/2/550

Editorial
What They’re Not Telling You
Published: July 31, 2010 NY TIMES

There is a lot of heated talk in Washington these days about the deficit, unfortunately little of it serious. Playing on Americans’ deep anxiety about the economy, Republican politicians have seized the deficit issue as their own — eagerly blaming the stimulus and even an extension of unemployment insurance for the problem — while denying their own culpability for helping dig this deep hole with years of irresponsible tax cuts.

The Democrats in Congress have all but ceded the debate. The White House has pushed back some, but as the polls make clear, not nearly hard enough.

The deficit’s size is alarming. In the 2010 fiscal year, the government is projected to collect $2.2 trillion in taxes and spend $3.6 trillion, leaving a gap of $1.4 trillion.

If current tax and spending policies continue, deficits are estimated to remain near $1 trillion a year for the next decade. After that they will explode — to twice the size of today’s deficit as a share of the economy by 2050 — as health costs rise and the population ages, and outlays for Medicare, Medicaid and, to a lesser extent, Social Security continue to grow faster than revenues.

We agree the situation is unsustainable. But cutting spending right now on relief and recovery efforts would worsen the economic slowdown and the suffering of millions of Americans, while making only a tiny dent in future deficits.

Spending on the biggest items in the budget (Medicare, Medicaid and Social Security make up about 40 percent) cannot be quickly cut back without unraveling the programs and inflicting deep and needless hardship on their beneficiaries. In the longer term, starting around middecade, Washington will have to begin wrestling the costs of these programs down, or the country will face an even bigger deficit crisis.

When it comes to controlling the near-term problem — trillion-dollar deficits every year for the next 10 years — the biggest help will be a return to solid economic growth and, with that, increasing tax revenues.

Growth will not be enough. There is no chance to put the budget on a sustainable path without significant tax increases, and not just on the wealthy. Few politicians, of either party, are willing to tell that truth.

Americans are right to worry about the deficit. They must also demand that their elected representatives do more than rail about the problem and begin a serious debate about the policy choices ahead. Here are some of the key issues that must be considered:

HOW DID WE GET HERE? When President Bill Clinton left office in 2001, the government had run surpluses for three straight years. By the time President George W. Bush left the White House, the government had run deficits for seven straight years, and the Congressional Budget Office projected a 2009 deficit of over $1 trillion.

Much of the deterioration resulted from huge Bush-era tax cuts, which left the nation chronically short of revenue, especially when it had to pay for two wars. And because the budget was already in bad shape when the financial crisis hit in late 2008, the necessary spending to rescue the system only deepened an already deep deficit. Unchastened, Republicans — joined by a few Democrats — are now determined to dig the hole even deeper by calling for all of the Bush tax cuts to be extended beyond their scheduled expiration at the end of this year.

WHAT ABOUT THE STIMULUS? The deficit has risen further under President Obama, to about $1.4 trillion this year, as the White House has tried to contain the recession it inherited.

The $862 billion economic stimulus, enacted by the Obama administration and Congress in 2009 along with subsequent aid, like extended jobless benefits, prevented a bad situation from becoming much worse, by supporting consumer demand at a time when private sector demand had collapsed. More help is needed. So far, stimulus accounts for an estimated 15 percent of the deficit in 2009, 28 percent in 2010 and 14 percent in 2011.

DOES THE BUDGET HAVE TO BE BALANCED? An economically powerful country can prudently run some deficits. A reasonable budget goal would be to reduce annual deficits to the point where the debt — the sum total of annual deficits, now $9 trillion — is no longer growing faster than the economy. Once the debt is stable, the nation would most likely avoid the worst effects of persistent deficits, including sharply higher interest rates and slower growth.

Under current projections, that would require cutting the deficit to about 3 percent of gross domestic product from 10 percent today. When he established a bipartisan deficit commission, Mr. Obama called for reaching such a goal by 2015. Given today’s weak economy, that is probably too rapid. The aim is sound, even if it takes closer to a decade to get there.

WHERE ARE THE SAVINGS? The government needs to tighten its belt. Finding deep, near-term savings will not be easy for one basic fact: the largest chunk of the budget — the 40 percent going to Medicare, Medicaid and Social Security — is the most difficult to cut, politically and for sound policy reasons.

Most plausible measures to slow the growth in Medicare and Medicaid over the next decade have already been spoken for in the health care reform legislation, and many of the research projects and pilot programs intended to slow the growth of medical costs will not yield results for several years. Congress and the White House will certainly have to keep pushing them forward. Any changes to Social Security would have to be phased in over decades, to protect Americans in or near retirement. A combination of modest benefit cuts and modest tax increases would fix the program.

Another 6 percent of the budget is the interest on the national debt, which must be paid.

So what can be cut now? Less than 20 percent of the budget is so-called nondefense, discretionary spending. That includes spending on important and popular programs, including education, environmental protection, veterans’ health care, food and drug safety, scientific research, diplomacy and basic infrastructure. Mr. Obama’s proposed three-year freeze on discretionary spending (defense and national security are excluded) would save $11 billion next year and modest amounts later.

Once the economy recovers, more savings may be possible. But there is not as much fat there as the politicians may claim. In recent years, spending in most of these categories has been flat or barely rising.

Defense spending — $690 billion in 2010, or 4.7 percent of G.D.P. — accounts for another 20 percent of the budget. That has traditionally been politically off limits but there will have to be some very hard thinking there.

Another 14 percent of 2010 spending is for safety net programs, like unemployment benefits, food stamps and help for the working poor. Cutting back now would slow the recovery even further. Once things turn around, some of the costs will diminish, but additional cuts in the programs would harm the neediest Americans.

WHERE IS THE REVENUE? There is no way to deal with the deficit without also raising taxes. As the economy improves, tax revenues could rise to $3.6 trillion in 2015 and $4.6 trillion in 2020, according to the Congressional Budget Office, compared with $2.2 trillion this year.

That, however, assumes that all of the Bush-era tax cuts expire at the end of this year, and that is not going to happen. The Obama administration and Democratic Congressional leaders want to let the tax cuts on the richest Americans expire, while extending the so-called middle class tax cuts — generally, those for taxpayers making less than $250,000. That would cost an estimated $2.9 trillion over 10 years.

One way to stanch that loss would be to make the middle class tax-cut extension temporary, and in the meantime, undertake tax reform to increase revenue by broadening the tax base and adding a value-added tax. Republicans, predictably, want to extend all of the Bush tax cuts, including for the richest taxpayers, permanently. If all of the tax cuts are extended, the revenue loss over the next 10 years will be some $3.7 trillion.

When the deficit-reduction committee issues its report in December, we hope it will explain the tough truths about the causes of the deficit and the painful choices that will have to be made.

President Obama cannot wait until then. In the fall campaign, there will be even more disinformation and demagoguing about the deficit. He needs to frame the debate. That means saying what the Republicans will not: there is no way to fix the nation’s fiscal crisis without higher taxes now and in the future — and cuts in entitlement programs down the road.