Global Matters: The farcical debt debate

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Brace yourselves. We’re about to enter a season of protracted angst and anger over the national debt and the federal budget deficit. We are entering the campaign season, and so we can expect outrage – outrage, I say – over the profligacy of our government, the irresponsibility of the Obama administration and the immorality of saddling our children and our grandchildren with debt.

We will be admonished that is absolutely necessary to cut government expenditures and therefore to live within our means. We will hear of the woes to befall us unless we eviscerate “non-essential” programs and restore sanity in Washington. We will be reminded that every household must balance its budget (this will be accompanied by imagery involving a kitchen table and a family making “tough decisions”) and that we should demand nothing less of our government.

For the sake of our country, my fellow Americans, we must stop the bleeding.

There are at least two fallacies associated with these rants. The first relates to the nature of our debt, and the second relates to the so-called evils of debt in the first place. In this column we’ll look at the question of government expenditures, which, according to most debt critics, are the principle cause of our indebtedness. My take on the other fallacies will have to wait until next month.

Our government “expends” revenue in essentially two ways: first, by actually spending money on goods and services, and second, by foregoing revenue the government would otherwise collect through taxes, absent a policy decision, such as a tax break, not to do so.

The first kind of expenditure is familiar to us and is what deficit hawks in Congress decry the loudest. Everything the government spends money to acquire or provide should, in the eyes of the deficit hawks, be brought under the microscope. We simply spend too much.

But take a look at where the federal government spends our money. According to the Center on Budget and Policy Priorities, in 2011 some twenty percent of the entire federal budget, or $718 billion, was spent on defense and international security. That number includes $159 billion to support the wars in Afghanistan and Iraq.

Another twenty percent, or $731 billion, paid for Social Security, which provided retirement benefits to 36.5 million retired workers, 2.9 million spouses and children of retired workers, 6.3 million surviving children and spouses of deceased workers and 10.6 million disabled workers and their dependents.

Finally, three health insurance programs, Medicare, Medicaid and the Children’s Health Insurance Program, comprised another 21 percent of the budget, totaling $769 billion. Of that $769 billion, nearly two thirds, $486 billion, went to Medicare.

Add these three categories of expenditures together and you account for more than 60 percent of all federal spending. What is being done to reduce these allegedly bloated figures?

Well, the Obama administration has been trying to end our military involvement in Iraq and Afghanistan. If we could somehow extricate ourselves entirely, we’d save $159 billion annually. Efforts to reduce our involvement, however, are accompanied by howls of outrage that we are “cutting and running,” that the mission isn’t accomplished, that if we pull out Iraq and Afghanistan will devolve into even more chaotic environments, and so on.

The Obama administration has also been trying to manage the burgeoning amounts the government pays for health care. The Supreme Court is currently considering the constitutionality of the so-called “individual mandate,” but lost in the frenzied debate is one of “ObamaCare’s” principle objectives – lowering the cost of health care over time by spreading the risk, and through other cost control incentives. Try having a rational debate on this one. Death panels, anyone?

Efforts to tinker with Social Security and Medicare are also doomed. Retirees point out that they’ve worked hard all their lives, that they damn well expect to receive their benefits and that, by the way, they vote. Others argue that eligibility for Social Security is sacrosanct and that it wouldn’t be fair to move the goal posts for those now in the workforce. Strike three!

What’s left? The remaining 40 percent of the federal budget is spent on the social safety net (13 percent), veterans’ and federal retirees’ benefits (7 percent), interest on the debt (6 percent), transportation infrastructure (3 percent), education (2 percent), research (1 percent) and all other expenses (7 percent).

Any rational person would look at the two elephants in the room, defense and health care, and posit that we can achieve some big savings. Let’s end these wars. Let’s get a grip on heath care costs.

But deficit hawks focus instead on cutting programs for the neediest Americans, who are, not coincidentally, those with the least political power. Yet safety net programs comprise just 13 percent of the budget.

Or they seek to reduce the government’s health care expenditures by offering consumers vouchers with which we can purchase health insurance coverage. But no one explains how vouchers will do anything to contain costs, unless that’s accomplished simply by capping the government’s exposure once we’ve exhausted our vouchers.

You might ask, what about tax expenditures, i.e., the revenue we might raise by eliminating some tax breaks? Or how about raising some taxes on certain segments of the population? We’ll get to those in a future column, but I think you know how that discussion goes. Next time we’ll discuss whether debt and deficits are really the boogiemen some make them out to be. Until then, however, you have to wonder whether those most vehemently opposed to debt are those least disposed to do anything meaningful about it, unless it comes at the expense of those least able to wield political power and influence.

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Perry B. Newman is a South Portland resident and president of Atlantica Group, an international business consulting firm based in Portland, with clients in North America, Israel and Europe. He is also chairman of the Maine District Export Council.