December 3, 2010
Fixing the Deficit

As the Deficit Commission concludes—or doesn’t—its work, a little perspective. According to a recent analysis by the Center for Budget and Policy Priorities (CPBB), the bulk of today’s budget deficit comes from four sources: the Bush era tax cuts, the recession, the wars in Afghanistan and Iraq, and the stimulus package. (You can find a graphical depiction of the center’s analysis at:http://www.flickr.com/photos/centeronbudget/5096757250/in/set-72157625197442712/.) Indeed, something like 40% of our current deficit derives from the Bush tax cuts and the two wars in Afghanistan and Iraq, a decreasing percentage derives from the stimulus, and the rest is largely accounted for by the reduced tax revenues that government has collected since the recession began.

The graph makes it clear that at least two of the four major sources of the increasing US deficit are entirely within our ability to control right now. It is fully within the United States’ power to let the Bush tax cuts expire. (Indeed, keeping them will lead to a massive explosion in the deficit, as the graph demonstrates.) It is likewise entirely in the United States’ control to radically reduce our presence in both Afghanistan and Iraq. (The stimulus money has by now mostly been spent, and so no huge savings will be found cutting the rest of it, as the graph also makes clear.) 

Note that if we do these two things, and at the same time do not increase government spending beyond inflation, the budget will be essentially balanced once the economy recovers—without a single cut in government programs. You can still have roads, and schools, and social security, and Medicare, and food and drug testing programs—all of it. Significant entitlements reforms will surely be needed as time passes, but the notion that it is spending on the arts or welfare that is driving the deficit is utter twaddle. 

We’ve made this mess, and we can fix it. But we need to start from the facts: our poor choices in sending Americans into two wars and cutting taxes while expanding military spending and creating a prescription drug benefit for elderly Americans have been the biggest government-made sources of the deficit. Almost all the rest of it derives from the recession. If you want to make progress in stopping the bleeding, you need to stop it where it’s bleeding the worst. Until we do this, we’re throwing bandaids at a jugular vein and kidding ourselves that we’re making the patient better.