US Economy Dr. Peter Morici: The tragedy of the US Budget impasse
By Professor Peter Morici
Apr 8, 2011 - 6:07 AM
President Obama delivers a statement on the ongoing budget talks, April 07, 2011.
Dr. Peter Morici: The tragedy of the US Budget
impasse: If the government shuts down, the Republicans will likely get the blame
but the American people will be the losers.
Federal finances are in a shambles and in need of radical overhaul. President
Obama’s budget ignores this; however, with a shutdown, he will be able to tar
Republicans as ideologues, steal the initiative on spending and taxes, and leave
his successor with a mess.
From 2007, the last full year before the financial crisis, to 2011, the second
year of recovery, spending has jumped $1.1trn—40%. The President’s budget plan
would trim the deficit to $774bn by 2022, but his projections have been rejected
as too optimistic by private economists and political analysts of all stripes—he
assumes cost savings and new revenues from health care reforms that are unlikely
to materialize and a 4% economic growth through 2014, which few private
Most legitimate deficit reductions the President’s budget accomplishes are
through higher taxes on the wealthy, and a new interest and dividend tax that
will likely drive business investment and personal wealth offshore.
Higher taxes are not the answer. In 2011, spending is projected at $3.8trn and
revenues at $2.2trn. A 50% increase in all taxes and fees—personal income,
Social Security, Medicare, and corporate taxes, entry fees into national parks,
and the like—would leave the deficit at $560bn. Even if phased in over several
years, such a dramatic increase in taxes and fees would send the economy into a
depression from which it would never recover.
Since 2007, only $200bn would have been necessary to keep spending in line with
inflation, but the Congress and President, in the name of temporary stimulus,
permanently increased spending another $900bn on entitlements—notably on
increased Medicaid benefits; industrial policies for electric trains, windmills
and the like; and more regulators, such as to accomplish bank reforms that have
not managed to restore lending to small businesses or end consumer credit car
Also since 2007, Social Security, like Medicare, began spending more than it
takes in and is headed for insolvency, and skyrocketing costs for drugs, health
insurance administration and malpractice are making both Medicaid and Medicare
too expensive to continue in their present form.
Along with prudent streamlining and consolidation of regulatory and other
discretionary programs, Social Security, Medicare and Medicaid must be radically
Like an adolescent seeking an outsized allowance, Americans have been told these
facts over and over again by journalists, economists and many moderate and
conservative politicians. And President Obama has boosted his reelection
prospects by telling Americans it isn’t so—instead, he says soaking Americans
earning over $250,000 will solve all their problems. He is not leveling with
Republicans have tabled a plan for budget reform. Solutions for Social Security
are absent and suggestions for Medicaid and Medicare are
irresponsible—Republicans recommend vouchers for seniors and block grants to the
states to finance Medicare that merely would shift the burden of a broken system
onto the elderly and governors. At least open discussion of this plan would
focus Americans on the need for real reform.
The Social Security retirement age must be raised, now, to 70 for all Americans
under 55, and the federal government must more earnestly regulate drug prices
and health insurance administrative costs and curb malpractice cases.
The private health care system is monopolized, and is less efficient than
private, but better regulated, systems abroad. Specifically, Americans pay
18% of GDP for health care, while the Germans and Dutch pay only 12% to
accomplish outcomes as good or better.
Americans simply pay much more for drugs, health insurance administration and
mal-practice than do the Europeans, but each interest group has enough
Congressmen or a President in their vest pocket to keep real reform at bay.
Comically, President Obama, through his surrogates in the Senate, and the House
Republicans are now scrabbling over about $40bn in cuts from 2011 spending and
that comes to less than 1% of federal spending and 3 of the deficit.
If the budget impasse causes the government to shut down, the President will use
his superior rhetorical skill to paint Republicans as irresponsible. Voters, not
wanting to face up to the insolvency of Social Security, Medicare and their
government overall, will believe him.
Nero fiddled while Rome burned but at least the citizens were outraged. In
contemporary America, the President conducts an orchestra of equally
The US Budget Battle:
Professor, Robert H. Smith School of Business, University of Maryland,
President Obama takes questions on the budget, the price of gas, education, and what the country can do to develop alternative energy sources:
The New York Times
says: It’s Not Really About Spending
If the federal government shuts down at midnight on Friday — which seems likely
unless negotiations take a sudden turn toward rationality — it will not be
because of disagreements over spending. It will be because Republicans are
refusing to budge on these ideological demands:
No federal financing for Planned
Parenthood because it performs abortions. Instead, state administration of
federal family planning funds, which means that Republican governors and
legislatures will not spend them.
No local financing for abortion
services in the District of Columbia.
No foreign aid to countries that
might use the money for abortion or family planning. And no aid to the
United Nations Population Fund, which supports family-planning services.
No regulation of greenhouse
gases by the Environmental Protection Agency.
No funds for health care reform
or the new consumer protection bureau established in the wake of the