Deficit Reduction and Tax Breaks: Rhetoric and Priorities

Actions speak louder than words. A tree is known by its fruit. Where your treasure is, therein lies your heart. These three sayings each have at their root a value on integrity or authenticity that cuts through purported assertions designed to manipulate or otherwise mislead. Integrity here is consistency between word and deed. When members of Congress have cried that the sky was falling under the weight of the annual deficits and the accumulated debt of the U.S. Government, a person might ask by looking at the actual votes on legislation whether the representatives really considered the fiscal imbalances as so dire. If someone exclaims that her house is about to explode but does not act accordingly, such as in running out of the house rather than finishing dinner, it is reasonable to doubt that the person really believes that a blast is imminent. In protecting tax breaks even amid a deficit of over $1 trillion in 2011, members of Congress belied their own warnings concerning the American governmental debt crisis. The American people as a whole let their representatives get away with the Janus-like stances, and this in turn eventually allowed the U.S. Government debt to exceed $20 trillion. 

Generally speaking, a crisis truly acknowledged does not admit the luxury of granting the status quo a continuance. In other words, if the elected officials really did view the trajectory of deficits as unsustainable in 2011, then continuing the tax breaks would have been off the table. In prioritizing protecting constituent interests by tax breaks and by insisting that deficit-reduction is only to be accomplished by spending cuts, a member of Congress is actually saying that the deficit/debt problem is not really a crisis. 

So when the U.S. Senate Republican leader, Mitch McConnell said in 2011 that he was open to ending tax breaks for special interests yet without including those of his constituents, he undermined his insistence that the deficit must be significantly reduced.  He argued that the tax break that he had secured in 2008 for the owners of thoroughbred racehorses was essential for the protection of jobs in Kentucky. Of course, the financial interests of racehorse owners were not necessarily in line with—or reduce to—the protection of jobs. In political diction, the interests of capital hide behind those of labor even while going after those interests in private so as to maximize profit. That is to say, subterfuge may be the name of the game in the public square. The same can be said of Senator John Kerry, Democrat of Massachusetts, who claimed to want to eliminate tax breaks except for a proposal for a tax cut for small breweries, such as Samuel Adams in Boston. The deficits must not be such a big problem if the U.S. could afford additional tax cuts. At the time, mega-wealthy “operations like oil refineries, Hollywood productions and hedge funds have all profited” by tax breaks.[1] Tax breaks for industries in general added up to an estimated $123 billion a year—hardly chicken feed.

The “disconnect between the lawmakers’ words and deeds" reflected the hurdles that Congress and the White House faced as they looked to cut at least $1.2 trillion from the government's debt.[2] Talk of cutting tax breaks to raise money and reduce the debt had become a mantra in Washington, but it threatened sacred ground; "such breaks are a favorite tool among both Republicans and Democrats to reward supporters and economic interests in their home states.”[3] Given Fed chief Ben Bernanke's remarks on October 4, 2011 before the Joint Economic Committee of Congress that even reducing the debt by $1.2 trillion would not be enough, talk of protecting favorite tax breaks undercuts any claim that the public debt is a dire problem. To be sure, obviating another recession was also on Congressional minds. However, even as he was urging Congress to act in order to avoid a double-dip recession, Bernanke said of deficit-reduction efforts, "More will be needed to achieve fiscal sustainability."[4] That is to say, the U.S. Government could lose even its AA rating. Risking this by protecting local interests is short-sighted; it is like a biker accelerating down a hill while looking only a few feet ahead. We might save a few deck chairs for weary passengers, but what about that iceberg ahead? Is anybody even looking?

I contend that we, the electorate, ought to accord claims of crisis as valid only if sacred ground is given up. “Whether any of [the tax breaks] are scrubbed from the books may ultimately prove how serious Congress is about reducing the debt.”[5] It is the price of admission, as it were, to having a legislator’s claim of a serious problem being recognized as authentic rather than as possibly just hyperbolic, attention-getting rhetoric.

Without a verifiable indication of some actual give on a sacred cow, a legislator should be told, “prove it!” regarding his or her claim on the necessity to reduce the deficit. If no such sacrifice is proffered and made, then the politician ought to be ignored as if he or she were crying wolf. Otherwise, we enable two-faced Janus behavior that undermines public confidence in the government and misleads us into being too confident that the serious problems are being solved. The American electorates as well as the media companies are perhaps too accustomed to letting our elected legislators off the hook by taking their words at face value as if they were self-validating. In the case of the U.S. Government’s continuing deficits and accumulated debt, the United States can ill-afford other priorities (even in terms of presumed GNP and job increases) coexisting antithetically with the baleful platitudes of crisis if the imbalances truly are unsustainable and a danger to the American union and its republics. That is to say, given the magnitude of the problem, the members of Congress should be held closer to account in terms of deeds matching words. Priorities, the making of which is part of the job of a legislator, should match the rhetoric in front of the cameras.

1. Ron Nixon and Eric Lichtblau, “In Debt Talks, All Tax Breaks Are Not Alike,” New York Times, October 3, 2011. 

2. Ibid.

3. Ibid.

4. Jon Hilsenrath and Luca Di Leo, "Bernanke Issues Warning, Urges Action on Economy," Wall Street Journal, October 5, 2011. 

5. Nixon and Lichtblau. 

Unsustainable Structural Fiscal and Federal Imbalances: The American Union

The nonpartisan Congressional Budget Office (CBO) announced on January 26, 2011 that the U.S. Government’s budget deficit for the year would soar to nearly $1.5 trillion, which represents $414 billion more due to the extension of the Bush tax cuts. The deficit had been $1.4 trillion in 2009 and $1.3 trillion in 2010. According to the New York Times, based on the CBO, “the deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product, the largest since 1945 — representing 10 percent and 8.9 percent of the nation’s output.” The budget officials also projected the deficit for 2012 would be $1.1 trillion. These figures dwarf the budget deficits even of the 1980s.

In his State of the Union speech on January 26th 2011, President Obama called for a partial five-year freeze in domestic spending by the federal government — what the New York Times calls “a more gradual imposition of fiscal discipline, while still increasing some spending in education, research and other areas.” It is hardly imaginable how a freeze alone could make a dent where the debt is over $14.3 trillion—a figure that is scarcely conceivable to a human mind, let alone sustainable. It is not clear that the U.S. Government will ever be able to pay off the mammoth debt, let alone arrest the annual increases in the debt (i.e., the deficits).

For their part, Republican congressional leaders used the need for a budget and an extention in the debt-ceiling in 2011 to pressure Democratic leaders to adobt substantial cuts, rather than merely a freeze. As a result, President Obama himself came to urge $4 trillion in cuts over several years. Yet even as the Republicans, whose penchant for less government (and perhaps restoring federalism) dovetailed with more cuts in federal spending, this position too did not take sufficiently seriously the U.S. Government's deficit and debt, for tax increases were to be off the table. 

In short, neither of the major parties were taking the structural fiscal imbalance in the U.S. Government sufficiently seriously.  It is as though they were urging the use of a bicyle rather than a car or train to get from Orlando to Miami in Florida (and let's add just for fun, "in August"). Beyond other objectives (such as less government) being allowed to intercede, the proposals were not sufficient. Were reducing the structural deficits and debt of the U.S. Government the overriding goal, both trillions in tax increases and spending cuts would be instituted over many yeears. I contend that it to be a moral imperative that the debt amassed since the surpluses in the late 1990s be paid off before the mean age in the generation of 18 to 38 year-olds in 2000 retire. The remaining debt could be paid off in incremental installments over many years. Simply passing on our debt for others to pay would be as immoral as it is convenient. 

Fortunately for us, restoring a balanced federalism can facilitate paying off the debt in our lifetimes. Rep. Paul Ryan's proposal for block grants to the state governments for medicaid claims to shift that program for the poor from the U.S. Government to the states. It is thus in the direction of restoring a balance in American federalism. However, the block grant element retains the federal purse-strings, and thus falls short in this regard. Both in terms of reducing the federal government's annual deficits and restoring a federalist balance, Rep. Ryan should have proposed that the states both run and pay for medicaid by raising state taxes. It would be up to the respective voters of the states to decide the level of coverage and the amount of tax increase--taking into account their respective state's' fiscal position so as to deal with any deficit there as well. Medicare too could be transferred to the states, though it would not be prudent to leave it up to the states to fund it until after states such as Florida, California and Illinois have solved their own structural deficits. Policy decisions involving health-care for the poor and the elderly could thus be tailored to the circumstances and ideologies that tend to differ in a union on an empire-scale. However, federal taxes would not decrease accordingly on account of the structural deficits and the objective of paying off the accumulated federal debt. Once the latter is eliminated, the federal taxes could come down.

One might squauk, "But that would mean raising my state taxes without corresponding tax cuts at the federal level!" Correcto! The lack of symmetry here is the mirror image of the asymmetry that has been involved in running deficits of over $1 trillion for years and having amassed a federal debt of over $14 trillion. We like asymmetry when it is convenient but abhor it when it goes against our pocket books. This combination of sentiments is what we must counter, bottom-line.  

Sources:

David M. Herszehhorn, “Deficit Forecast Nears $1.5 Trillion, Fueling Partisan Battle on Federal Spending,” The New York Times, January 26, 2011.

Stephen Gandel, “View from Davos: How Bad is a $1.5 Trillion Deficit?” Time, January 27, 2011.

On the State of the (American) Union: Getting Real

It is certainly more politic to declare the state of the union to be strong rather than weak. In his State of the Union speech in January 2011, President Obama ended by stating definitively, "The state of the union is strong." Even though particulars could doubtless be found to support his claim, I contend that he severely understated the weakness in the state of the union at the time.

The $45 billion deficit in the Social Security fund ought to have raised more than a few eyebrows, not to mention the U.S. Government deficit of over $1 trillion and the related debt of $14.3 trillion. To claim strength as if the U.S. were still a going concern as long as such a debt exists is more fitting for a magician than a U.S. President. Furthermore, one could point to the 3.4 million inhabitants expected to be foreclosed by the end of 2011 or the 9.7 million unemployed on unemployment compensation in January, 2011 (51,000 added the last week of January alone), as well as to the 40 million inhabitants within the U.S. still without health insurance (i.e., having to wait until 2014 because of a deal made with the insurance company lobby--a party with a vested financial interest).

The President's State of the Union speech evinces a state of denial going far beyond one man. One might ask, moreover, whether structural or systemic solutions are even possible in a representative democracy, or is the free world destined to be poll- and issue-driven? Furthermore, are we too fixated on the status quo wherein we prioritize our debate on the size and involvement of government (e.g., tax increases vs. spending or tax cuts, rather more revenue and less spending) over the immediately pressing exigency of fiscal balance and the human rights of the least well off (John Rawls' criterion for a just outcome)? Are we destined to have solutions foisted on us by the brute force of necessity? In short, can we bracket our incremental approach based on convenience and think instead about the long-term viability of the system itself? The State of the Union of 2011 notwithstanding, the state of our union is worth taking another look.

Source:

David M. Herszehhorn, “Deficit Forecast Nears $1.5 Trillion, Fueling Partisan Battle on Federal Spending,” The New York Times, January 26, 2011.

Political Staying Power: Ethanol Subsidies

“A broad bipartisan majority of the Senate voted [on June 15, 2011] to end more than three decades of federal subsidies for ethanol. . . . [At the time,] Gasoline blenders [received] a tax credit of 45 cents for every gallon of ethanol they blend[ed] with motor fuel. The amendment would have repealed that as well as a tariff of 54 cents a gallon on imported ethanol. . . . The tax breaks . . . cost about $6 billion a year. The House [was] expected to reject the repeal as unconstitutional because tax bills must originate in that chamber, and the White House opposes it. But the 73-27 vote signals that once-unassailable programs could be vulnerable.  [The intent was] to end subsidies for wealthy interest groups and [to make some] cuts before slashing social-welfare programs. [Thirty three] Republicans joined 40 Democrats and Independents in supporting [the] repeal. (E)thanol has come under increasing fire from diverse groups, including food industry groups concerned about rising corn prices and environmentalists who had concluded corn ethanol wasn't an effective way to reduce greenhouse gas emissions.”

At the time of the vote, much of the gasoline sold at service stations across the U.S. contained up to 10% ethanol, in part because of federal regulations that effectively require it. The Obama administration “proposed pushing the blend limit to 15%, despite objections from auto makers worried that higher ethanol levels would damage engine components in cars. Auto makers design many so-called ‘flex fuel’ vehicles to run on ethanol blends up to 85%. But few service stations outside the Midwest offer such fuels.”

“The ethanol industry and its supporters, who have been bracing themselves for an end to the tax break, were critical of the vote. ‘We need a glide path, and not a cliff, for the only alternative to oil,’ said Sen. Amy Klobuchar (D., Minn.). ‘We're talking about pulling the rug out from an industry that provides 10% of the nation's fuel supply.’ . . . The Renewable Fuels Association, an ethanol industry group, criticized the action, noting that the Senate ‘voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry.’ . . . The tax break benefits the ethanol industry, which is dominated by commodity giants” such as Archer-Daniels-Midland “by sweetening the financial incentive for gasoline retailers to use ethanol.”

“Repeal supporters said the $6 billion-a-year subsidy amounts to wasteful support for a fuel whose promises of cost savings, lower pollution and energy efficiency have not materialized. ‘This industry has been collecting corporate welfare for far, far too long,’ said Sen. John McCain (R., Ariz.), who's been fighting the subsidy for years. Mr. McCain offered another measure, to block federal funding for ethanol pumps and storage facilities, which failed 41-59. The House adopted a similar amendment.”

“Food companies and livestock farmers “have complained that their costs have exploded as five billion bushels, or 40% of all the corn grown in the U.S. last year, was consumed in ethanol production. The price of corn has traded above $7 a bushel for much of the spring [of 2011], twice the year-ago level. Some economists doubt that the tax credit is now crucial for the industry. The ethanol industry only began to grow rapidly five years ago when new energy legislation required gasoline retailers to use corn ethanol: 12.6 billion gallons [in 2011], moving to 15 billion gallons in 2015. The tax credit is part of the reason the gasoline industry buys more than one billion gallons a year than required by federal mandate. But if it expires, ethanol demand wouldn't fall below the mandate, preventing financial calamity for producers, said Bruce Babcock, an Iowa State University economist. ‘The ethanol industry doesn't need the tax credit anymore,’ he said.”

It is remarkable that even though the ethanol industry did not need the tax credit, it could still count on the White House and the U.S. House of Representatives to keep the benefit around. This was in spite of the inefficiency of ethanol, the negative impact of ethanol on food prices, the existence of the duplicative mandate, a U.S. budget deficit of over $1 trillion, and a contentious budget-cuts/debt-ceiling debate going on in which cuts were being sought by legislators. The size of the deficit alone (and the accumulated U.S. debt) should have made the affordability of the tax credit a foregone conclusion, yet astonishingly denial seemed sufficient to enable the status quo to continue unabated. That is to say, if a current U.S. Government deficit of over $1 trillion didn’t make the non-essential subsidy a non-starter, what could suffice to do so? To be sure, that the U.S. Senate voted by a substantial margin of senators to end the credit was notable. Politically, however, it merely reflected the split of the agricultural interest on the issue due to the impact of ethanol on the price of corn.

Even considering the U.S. Senate’s action, the staying-power of the status quo in the face of the unsustainable U.S. Government debt of over $14 trillion is truly remarkable in what it says about the ability of a political union based on representative democracy and federalism to deal seriously with dire problems. In other words, one might reasonably ask whether a republic is capable of change sufficient to avoid a train-wreck. Can a people govern themselves when it really counts, or is democracy a matter of convenience? Perhaps part of the problem lies in priorities.

As the U.S. Senate was voting on the ethanol subsidies, the U.S. House was simultaneously rejecting attempts to reduce farm subsidies while cutting the Women, Infants and Children program, “which offers food aid and educational support for low-income mothers and their children,” by $868 million (which represents a 13% cut), and an international food programs that provides emergency aid and agricultural development by $50 million (which represents a 33% drop), according to USA Today. In a governmental context in which budget cuts were very much in the air, the staying power of the ethanol subsidies in the House even as food for the hungry was deemed expendable reveals questionable priorities in terms of budget policy, unless it is the case that large corporations are more in need than women and children. That is to say, if House Republicans were voting in line with an ideological preference for less government, wouldn’t that proclivity apply to corporate subsidies as well as food aid?

Ethanol subsidies, international food-aid, and aid to impoverished people domestically can be prioritized in terms government. For example, it can be argued that feeding citizens (or residents) who are otherwise without enough food is more of a government’s responsibility than is either giving corporations subsidies or sending food aid abroad in exchange for influence in foreign governments. The distinctions between foreign and domestic and necessity and profit are useful in isolating core from peripheral functions of government. In times of budget-cutting, the core should be treated differently than the peripheral. Additionally, it might be asked whether in a federal system the subsidies and food-aid are properly federal or state domains. It could be that federal food aid should be cut completely in order to be picked up differentially at the state level.

Sources:

Naftali Bendavid and Stephen Power, “Ethanol Suffers Rare Loss in Senate,” The Wall Street Journal, June 17, 2011.

The Associated Press, “House Spares Farm Subsidies, Targets Food Aid,” USA Today, June 17, 2011.

Other Priorities and Side-Shows Eclipsing a Historical Debate 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 12^th 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 (not to mention the $20 trillion years later). 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.

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.

Leadership by Elected Representatives: Transcending the Politics of Slashing Vulnerable Federal Programs and Avoiding Tax Increases

On January 20, 2011, months before the Republicans would use leverage of a baleful debt-ceiling-default to extract additional cuts, the Republican Study Committee (RSC)—a group of fiscally conservative members of the U.S. House of Representatives—announced a plan by which $2.5 trillion could be cut from the U.S. Government's spending over ten years. According to The New York Times, the proposed cuts “would exclude the military, and would not touch the big entitlement programs, Medicare and Social Security. As a result, [their] effect on the entire array of government programs, among them education, domestic security, transportation, law enforcement and medical research, would be nothing short of drastic." The leaders of the RSC claimed that the cuts were “appropriate and necessary, given the government’s $14 trillion debt and annual deficits at their highest levels since the years just after World War II." The RSC "proposed generally reducing agency budgets to their levels in 2006 — the last time Congressional Republicans controlled the budget process — and then freezing them, with no annual inflation adjustments.” The RSC also recommended “slashing the federal workforce by 15 percent and canceling pay raises for five years, for a total of $2.29 trillion in savings.” Finally, the proposal included “an additional $330 billion in cuts to specific programs, including Amtrak, foreign aid and even the Washington subway system" (Source #1).

Analysis:

Back in July 2009, The New York Times reported that most Americans continued to want "the federal government to focus on reducing the budget deficit rather than spending money to stimulate the national economy" (Source #2). Nevertheless, Congress and the President went ahead in 2010 with extending the Bush tax cuts, which were expected to add an expected $850 billion to the deficits of 2011 and 2012. The President had proposed to extend the tax cuts for the lower and middle classes, which would be more apt to spend rather than save the difference and thus stimulate the economy then in a weak, jobless recovery. The congressional Republican leadership demanded that the tax cuts be continued for the wealthy as well, even though the latter could afford to pay more in tax and would be less apt to spend than save the money from the cuts. If the proposed spending cuts were “necessary” given the sizes of the deficits and debt, it would seem that the tax cuts—even those likely to be spent and thus stimulating—would have been a luxury the U.S. Government could ill-afford. That is to say, the deficits and debt could play second fiddle to stimulating the economy, only to be the reasons for “necessary and appropriate cuts.”

Besides dovetailing with the Republican goal of less government—particularly at the federal level—the combination of tax cuts and budget cuts sends mixed signals as to the importance of the U.S. Governments deficits and accumulated debt. Within the proposed spending cuts alone, cutting in some areas while leaving others—notably defense—completely untouched sends similarly schizophrenic signals regarding the seriousness of the deficits and debt. If the financial affairs are perilous, the U.S. Government could ill-afford protecting defense contractors and other sacred cows.

To be sure, Americans polled overwhelmingly said that they prefer cutting government spending to paying higher taxes, according to The New York Times (Source #3). The RSC's proposal was in line with this finding. Also, the proposal was in line with the poll's finding that nearly two-thirds of Americans do not want Medicare or Social Security benefits cut even to reduce deficits. At the same time, unlike the RSC’s proposal, the poll indicated that Americans by a wide margin preferred cutting the Pentagon's budget to cutting benefits in Medicare and Social Security; the RSC proposal treats all three areas the same (leaving them all off the chopping block).

However, those who are led by polls cannot lead, for leading involves moving the polled rather than being moved by them. Furthermore, the citizenry may not have fully aware of how serious deficits of over $1 trillion and a debt of over $14 trillion are to the viability of the United States. The seriousness of the deficits and debt require tax increases and spending cuts (including sacred cows) even if the general populous is not much bothered by the threat.

Representatives have to use judgment to know when to be agents reflecting the will of the people who sent them and when to lead constituents who sent them but would view the indebtedness as more precarious had they studied the matter more fully. In other words, elected representatives sometimes need to be critical of what their constituents think is in their true interest and that of the United States as a viable system. As faithful agents, representatives must look in such cases to the best interest of their district and to the United States as a viable concern. Going beyond polls, leaders are oriented to protecting the led even from themselves.

Sources:

1.      David M. Herszenhorn, “G.O.P. Bloc Presses Leaders to Slash Even More,” The New York Times, January 20, 2011.

2.      Dalia Sussman, “New Poll: Bring Down Debt, Don’t Spend More,” The New York Times, July 29, 2009.

3.      Jackie Calmes and Dallia Sussman, "Poll Finds a Willingness to Cut Spending, Just not Medicare or Social Security," The New York Times, January 21, 2011, p. A11.

U.S. Government Debt: A Constitutional Moment?

The Congressional Budget Office (CBO) issued a report in June 2011 indicating that the debt of the U.S. Government had reached a dangerous level—that is, one likely to trigger a financial crisis. This characterization ought to have garnished close attention by the American people, for the viability of the Union itself may have been at stake. I submit that such a condition, moreover, warrants a constitutional moment—that is, a time when the citizenry focus on solving a basic governmental problem. In other words, the matter of the publicly-held U.S. Government debt may have justified popular sovereignty stepping in. Of course, how this would have been done is itself a problem, particularly because government officials had no interest at the time in relinquishing their power as our agents. This may explain in part why the debt would go on to reach $20 trillion by 2017.

Here, in a nutshell, was the problem. According to The Wall Street Journal at the time, “Most analysts say the borrowing cap [of $14.29 trillion] would have to be raised by more than $2 trillion to carry the government through the 2012 election. . . . The Congressional Budget Office estimates the cumulative deficit for 2012-21 at $7 trillion. . . . Treasury Secretary Timothy Geithner, speaking at The Wall Street Journal's CFO Network conference in Washington, said there is broad agreement that the country needs $4 trillion to $5 trillion in deficit-reduction over 10 years, but budget negotiators haven't agreed on how those reductions should be structured. . . . Geithner said it would be politically impossible to reach a final agreement unless the package included some tax increases, though many Republicans have said they won't support such a plan.”

Given the basic disagreement concerning revenue, government officials involved in negotiations were considering using a chain-weighted CPI to adjust entitlement benefits. However, such a change would have resulted in only incremental change—a mere $300 billion over ten years saved out of a cumulative expected deficit of $7 trillion. In other words, the agents of the people, finding themselves in a basic disagreement, turned to incremental, rather than systemic, change. The magnitude of the problem warranted more than incremental changes. 

I contend that a basic or fundamental structural imbalance inheres in a debt that is 70% of GDP. That is, for a government’s debt to reach a level that could trigger a financial crisis, something rather basic must surely be wrong with the way that government handles money. Such a basic, or systemic, problem justifies, and indeed requires, a momentary return to popular sovereignty. To rely exclusively on agents gives them too much power as agents and essentially relegates the importance of the problem. That the U.S. debt could go on to reach $20 trillion by 2017 demonstrates that the incremental approach did not work years earlier. 

In the American context, popular sovereignty traditionally operates not only by electing candidates for office, but also through referendums and through holding constitutional conventions. The use of a Union-wide referendum could answer whether tax revenue increases should be part of the solution, as well as whether entitlements ought to be cut. Additionally, the people could be asked whether any major federal programs should be transferred both in revenue and spending to the states.

The use of constitutional conventions, albeit rarely invoked historically, could address a possible constitutional amendment mandating a balanced budget (the problem being any loopholes, which would inevitably be exploited by the agents). Moreover, conventions could address the question of whether the U.S. Government’s debt is a symptom of a more basic imbalance between the U.S. Government and those of the several states. In other words, the crisis may go beyond the fiscal kind—political consolidation itself needing to be addressed if the U.S. Government is simply doing too much. 

To be sure, some of the American states, such as California, Florida and Illinois, have been dealing with sovereign debt of their own, just as Greece, Spain and Ireland have as well. However, whereas the revenue capability of the E.U. states has not been crowded out by the E.U.’s revenue authority, the U.S. states have been hampered by the financial “needs” of the General Government.  

Redistributing competencies or domains toward a balance in terms of federalism could ironically unburden the state governments even as more is laid at their laps. This is a matter for the popular sovereign—the people—to decide, given the foundational nature of the question.

Lest the duty of the popular sovereign be ignored in favor of the more convenient agent-driven debates on a chain-weighted CPI (a “managerial”-level concern), the United States may inadvertently hit the consolidated iceberg ahead because the rudder of the consolidated ship of state is too small for the ship. If that ship were not relied on so much, smaller ships could go around the stolid floe. 

Source:

Janet Hook and Corey Boles, “House GOP Digs In on Debt Ceiling,” The Wall Street Journal, June 22, 2011.