The solution to the debt crisis really isn’t a solution at all

Published in The News Tribune, August 4, 2011

Which is better for our country do you think, low taxes or big government?

According to Republicans in Congress, this question captures the essence of our national financial dilemma.

The suggestion that each of us must choose between more money in our pockets on the one hand, and a bloated unresponsive government on the other is politically astute, but also deceptive and irresponsible.

Let’s take the big government part first.  Over three quarters of federal dollars are used to pay interest on the debt, meet the health care needs of the poor and elderly, pay Social Security checks, and pay for the military. Believe it or not, both Social Security and Medicare are run with significantly lower administrative costs than are their private sector counterparts.  This fact is recognized even among those who argue for privatizing our federal pension and health care programs.

As we now know, the federal government is currently spending 40 percent more than it brings in in tax revenue.   And our national debt is over 100 percent of GDP.  But wind back the clock one decade.  Back then the federal government actually raised enough in taxes to pay all our bills, and then some.  And the nation’s debt was only about a third of what it is today.

So what has happened over the last decade to cause this dramatic change in the federal government’s finances?  Three things.  The Bush administration’s tax cuts significantly reduced revenue.  A 2001 recession and the wars in Afghanistan and Iraq ran up costs.  Lastly the recent financial crisis led to a deep recession and huge federal expenditures to shore up collapsing financial institutions.

While some of the resulting debt accumulation might be because of too much government, much of it is better seen as too little.  The largest single reason the debt has risen is tax cuts — or at least tax breaks handed out without compensating cuts in expenses.   Most recently, we’ve added $2 trillion to the debt because of the financial crisis.   But let’s not forget that the financial crisis was the result of private businesses acting in their own interest with little regard for the public consequences of their decisions — and with too little government oversight of these decisions.

So “Big Government” as the cause of our government debt misses the mark; similarly, the “low tax” promise that the Republicans are trying to sell is also deceptive.

We’ve heard that the last minute debt compromise that Congress has worked out entails $2.5 trillion in spending cuts over the next decade.  No one has decided exactly what these cuts will be, but we can guess that a good chunk of them will be in Medicaid and Medicare, the two federal health care programs.  In fact, some such as Richard Davis (who wrote recently in these pages, TNT 7-27), call for the federal government to get out of the business of Medicaid all together.

While cutting (or eliminating) programs such as Medicaid will reduce our April 15th bill, it won’t really save us any money.  That’s because if state governments take up the slack, state taxes will just replace federal ones.  If state governments instead decide to leave the elderly and poor to fend for themselves, the medical industry will be left to pay for uncompensated care – which they’ll recoup by charging those with better insurance policies more, and in turn health insurance premiums will rise.  In short, we pay collectively for each other’s health care one way or another.  Reducing the federal government’s role in financing these expenses just means we’ll pay for it another way.

The same holds true for many other federal programs that will be cut:  Lower federal taxes won’t leave us with more discretionary money in our pocket.

Which is why the debt deal made in Congress is an irresponsible one.  There is no way we can both pay off the debt and meet our obligations to the poor and elderly without paying more, one way or another.   Our problem isn’t big government; it’s leaders who seek short term gain instead of telling us the truth about the hard choices we face.