The Federal Budget Deficit: A current necessity to build a healthy economy and prosperous nation that can pay its debts in the future
Edith Rasell, Minister for Economic Justice, United Church of Christ
If you have been paying even a slight bit of attention to what’s happening in the country, then you know the nation and Congress are mired in a huge, ongoing, and acrimonious debate about the federal budget and the role of government. People on one side of this disagreement argue that our national priority must be strengthening the economy and putting people back to work, and that the federal government must have a large deficit to make this happen. Spending money, especially when others are not, is the most effective way to stimulate the economy and create jobs. The other group holds a nearly opposite view. The problem is too much government spending and too large a deficit, and they call for shrinking the role of government. In the next few weeks these fundamentally different views will be on display as members of Congress debate the federal budget: how much spending to cut, what (whose) taxes to raise, and how large a deficit is best.
People of faith can approach this disagreement through the lens of faith, with accurate information and sound economic principles. Let’s start with some basic facts. The current deficit is largely due to the economic downturn. In 2012, an estimated 64% of the deficit (nearly two-thirds) was caused by the downturn and recovery efforts. The Bush tax cuts that primarily benefited the wealthy contributed 19% and the costs of the wars in Iraq and Afghanistan accounted for 15%. Just 2% of the deficit was due to other causes and expenses. As the downturn ends and the economy regains strength, much the deficit will disappear. Putting people back to work and back to paying taxes; strengthening the economy to reduce spending on unemployment benefits, food stamps, Medicaid, and other safety net programs; and raising taxes on those who have most greatly benefited from the last 40 years of skewed economic gains are the best way to reduce the deficit.
But so long as the economy remains weak – and the fall in economic activity (gross domestic product) in the last three months of 2012 shows how weak it really is – Congress must continue running a deficit to support spending, jobs, and economic growth. Large spending cuts at this time will bring further weakening and could even cause a recession and an increase in the deficit. This is what the “fiscal cliff” was about. Many experts predicted the U.S. would experience a recession this year unless Congress modified their original budget plans calling for a large reduction in the deficit this year. Luckily, on January 1, Congress approved such a plan and the fiscal cliff was avoided, at least for now.
Unemployment, not the deficit, continues to be the nation’s main problem. The official count of 12 million without jobs is bad enough but that number inadequately reflects the true picture. It leaves out the 8 million who work part time but want full-time jobs, the millions who have hopelessly given up looking for work and so are no longer included in the official count, the millions who “retired” when they couldn’t find jobs, and the millions of young people who are continuing in school or working as interns when what they really want is a job.
High unemployment is not due to a mismatch between workers and jobs, or a lack of desirable skills. Workers at every education level – from those without a high school diploma to others with an advanced degree – face unemployment rates that are roughly double the levels in 2007 before the downturn began. The unemployed far outnumber job openings in each of the 12 standard industrial sectors that together make up the economy, and in each of 22 standard occupational categories, unemployment is significantly higher – up to two times higher – than before the downturn began. The federal government must continue to have a sizable deficit in order to create jobs, strengthen the economy, and get the country back on track.
But what about the debt we are leaving for our children and grandchildren? For their sakes, shouldn’t we shrink the deficit? No, not now. Our children need to live in strong families where the adults have jobs, if they want them. Unemployment is destructive of our physical, mental, and emotional health. Children need stable, healthy families with adequate incomes, secure housing, and opportunities for full participation in community life including access to higher education.
Moreover, our young people need jobs when they finish school. The economic crisis has been especially hard on young workers. In January 2013, official unemployment among 18 and 19 year olds – an undercount, remember, of those who want jobs – was 24%. Nearly a quarter of those looking for work cannot find it. Among 20- to 24-year olds, 14% were officially unemployed, far higher than the 7.8% for all age groups. Even among college graduates age 24 or below, 9.4% were jobless, roughly one in ten. But the heartache doesn’t end once a young person finds a job. Researchers tell us that someone who graduates from high school or college at a time of high unemployment faces significantly reduced wages for at least 15 years and is more likely to work in a lower level occupation than his or her counterpart who graduated in better economic times. The most pressing needs among our children and youth are an end the down turn, a strong economy, and plentiful jobs. For now, this means running a sizable deficit. Paying off our future debts will be much easier if the economy is strong and large, and people are employed in jobs that use their skills.
But once the economy is sound, we will need to shrink the deficit. Some of this will happen automatically. But Congress will need to raise taxes on the broad middle class as well as the wealthy. We will also need to contain our health care spending which is burdening employers and households as well as the government. Our health care prices are far too high. Negotiating price discounts will be necessary to ensure the long term financial health of the country. For example, allowing Medicare to negotiate with drug companies for lower prices of the medicines it buys for beneficiaries, as other insurers do, would save over $100 billion in the next ten years.
For the last couple of years the country has muddled along, not in a recession but with a persistently weak economy. Our large deficit has prevented a relapse into recession, as is happening in a number of European countries that adopted “austerity” (deficit-lowering) budgets, including Britain, and it has kept our growth rate around 2%, many times larger than rates in other deficit-cutting countries like France. But Congress has failed to support a strong program of job creation that might have ended our economic malaise, a program that could be funded through a combination of borrowed money and higher taxes on corporations and the wealthy.
This year Congress must approve a budget with a large deficit. To minimize job destruction, any modest deficit reduction must come from tax increases on wealthy households and corporations that are sitting on trillions in cash. Budget cuts must target military spending which has risen by over 50% in the past decade while spending on the safety net and core government functions – like environmental protections, education, the federal courts, energy programs, and public health – has either risen more slowly or been cut. The much-discussed, across-the-board cuts to military spending (the “sequester”) would reduce spending just to its 2007 level, a time when the U.S. was actively fighting two wars which are now ending, and an amount 40% higher than on 9/11. Experts say the Pentagon can absorb these cuts without negatively impacting national security. They should go forward. Moreover, reductions in military spending destroy fewer jobs, per dollar cut, than those in other areas such as health care, clean energy, or education.
Let us pass a federal budget that creates jobs and ends the pain of unemployment that millions of our sisters and brothers have borne for too long. Let us pass a federal budget that provides hope and opportunities to our children and grandchildren. Let us pass a federal budget that provides government services and programs that strengthen the common good, and let us pass a federal budget that cuts excessive military spending. For now, this will require a large budget deficit. But it sets us on the path to a strong economy that will allow us to more easily repay the debt.
February 18, 2013
This article was initially posted to http://www.ecclesio.com/