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Saturday, May 14, 2011

Spewing Out of a Deep Hole of Hopelessness: Other Priorities and Side-Shows in the Debates on the U.S. Government's Deficit and Debt

Writing in November of 2010, Fareed Zakaria opined that the “fate of the U.S.” would be decided “over the next year.” In truth, the fates may have pronounced their verdict on the “city on the hill” long before the end of the first decade of the twenty-first century. Denial can be a strong palliative in the midst of a pattern of sustained lapses in self-disciple and civic virtue—qualities that the American Founding Fathers had presumed are necessary to any viable republic.

The debate in 2010 on whether the Bush tax cuts should be extended for the wealthy pitted the interests of the rich against the need to bring down the deficit of over $1 trillion. In 2011, the debate on whether to extend the debt ceiling on U.S. Government debt pitted the two major parties against each other not only on whether spending cuts should be a precondition for the extension, but also on whether revenue increases should be in the mix at all. The two debates were replete with internal contradictions and being relegated to other, less serious, public policy objectives. In a sense, the debates on U.S. Government deficits and debt with respect to tax and spending policies were treated like step-children even as the union itself hung in the balance. In other words, missing throughout the debates was the matter of priority.

Fareed Zakaria, for example, wrote that “no matter how many programs you cut, you will need more tax revenue.”  In contrast, U.S. House Speaker stated on May 9, 2011 that tax increases would keep the GOP House from extending the debt ceiling. Meanwhile, Sen. Baucus’ Finance Committee held a hearing on May 12th to consider ending the oil industry’s tax credits, given the high profits being enjoyed by oil companies on account of crude being at roughly $100 a barrel (Brent at $110). The oil industry CEOs testifying were talking “shared prosperity” even as the Democratic senators were in the realm of “shared sacrifice.” The two sides were not even on the page.

Debating between killing the Bush tax cuts and ending some deductions seems a bit pedantic in the context of deficits of over a trillion and a debt of over $14 trillion. Even so, such false dichotomies have been indulged. Exacerbating the distraction, other public policy points were thrown into the mix. This is apparent from Zakaria’s suggestion in 2010 that the mortgage-interest deduction should be ended.

The deduction costs the U.S. Government $130 billion a year in lost revenue. In comparison, the tax cuts for the rich costs the government $700 billion. Even though Congress’ experience with tax reform in 1986 demonstrated the staying (lobbying) power of the mortgage deduction, Zakaria argued in 2010 that the deduction does not make sense because it undoubtedly facilitated the spurious sub-prime mortgages in which people were misleadingly put in houses that they could not afford. In other words, the deduction “encourages people to take on too much debt, inflates the housing market and has no real effect on homeownership.” Zakaria was apparently under the illusion that rational argument could stand up to the raw power of business lobbyists on K Street. For that matter, Sen. Baucus was apparently under the influence of the same drug in supposing that the oil industry lobby and its party would somehow roll over backwards as the oil industry tax credits are repealed.

The position that the Bush tax cuts should be extended for the wealthy in the midst of the 2010 deficit of over $1 trillion contained in itself a problem that the advocates scarcely admitted to, let alone recognized. The inconsistency in the position is transparent in U.S. Sen. Jim DeMint’s call for smaller deficits and a permanent extension of the Bush tax cuts for all earners. It is as if the senator was stating a death-wish to make things harder on himself as if he were urging another mile even while being about to collapse while running. The senator was essentially subordinating the deficit problem to his goal of shrinking the U.S. Government (or of government in general, without respect to restoring federalism). This is like someone who should be on the way to the hospital in an ambulance deciding to drive himself so he could make a detour on the way—as if his heart-attack were of secondary concern to picking up his dry cleaning.

In short, priorities and a recognition of the problem of powerful vested interests (and internal inconsistencies) are sorely needed as the U.S. Government wrestles with a debt that even at $14 trillion was perhaps beyond the point of no return. Perhaps it is from the standpoint of a reality of hopelessness that the matter itself is allowed to be relegated, and maybe even turned into a circus of sorts. In the end, it may be the failure to recognize and accept the hopelessness in the condition that is the root cause of the insufficiency in the proposed remedies.

Click to add a question or comment on proposals to reduce the U.S. Government deficit and debt.

Sources:

Fareed Zakaria, “Fixing the Deficit: Our Biggest Test,” Time, November 18, 2010.
Fareed Zakaria, “The Last Chance,” Time, November 29, 2010, p. 26
Michael Crowley and Jay Newton-Small, “Leading the Rebel Brigade,” Time, November 29, 2010, pp. 34-37.