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President Obama and the First Lady celebrate Halloween at the White House, Oct 31, 2011.
Dr. Peter Morici: Whether the Joint Select Committee on Budget Reduction
reaches a deal to reduce the US federal deficit by at least $1.2trn or
stalemates on November 23, Democrats appear intent on handicapping the national
economy with higher taxes and imperiling national security by cutting defense.
Those are the wrong places to solve the nation’s budget woes.
In 2007, just prior to the financial crisis and when Democrats took control of
Congress, the deficit was a manageable $161bn. Wars in Iraq and Afghanistan were
ongoing, and Bush tax cuts and prescription benefits for seniors were in place.
In 2011, two years after the recession ended, the deficit is $1.3trn. Spending
is up $847bn, and additional temporary tax cuts - - such as the payroll tax
holiday - - account for the rest. Of the $847bn, only $62bn was necessary to
accommodate inflation, and social security, health care and other entitlements
account for 78% of the rest.
Repeatedly, Democrats President Obama and Majority Leader Reid have exhorted
Social Security is not contributing to the deficit, but the program began paying
out more than its receipts in 2009, and the Trust Fund will be entirely depleted
Federal and state budgets are burdened by the least effective health care and
education systems among industrialized countries. For example, the German and
Dutch private systems spend about 50% less per capita and accomplish better
Progressive Education advocates equate reform with more money, even though the
United States has one of the most expensive systems on the planet and gets
subpar results—test scores are lower and graduates lack job skills employers
seek to build globally competitive enterprises.
Raising taxes to accommodate, instead of fixing those shortcomings would
permanently burden the US private sector with more overhead—higher taxes, health
care premiums and tuition—than foreign economies bear, making economic recovery
and adequate jobs creation next to impossible.
Real reform requires spending less, not more, by ferreting out waste foreign
health and education systems do not impose on taxpayers and businesses.
Yet, the Budget Control Act requires if the Special Joint Committee can’t reach
a deal - - and Democrats remain steadfast they will block any deal that
cuts federal health care spending or does not raise taxes—then sequestration
imposes $1.2trn in cuts on other discretionary programs and defense.
Budget calculations imposed on the Special Joint Committee already score savings
from ending wars in Iraq and Afghanistan; hence sequestration requires the base
defense budget -- defense spending less costs of troop deployment - - contribute
42% of the $1.2trn, and that is not practical.
US military hardware is aging and becoming less effective—sons are manning
fighters flown by fathers and the typical Air Force bomber is 34 years old.
Air force fighters are down from 3,602 in 2000 to 1,990 in 2011, and will fall
to 1,739 at current funding levels. Similarly, navy ships are down from 316 to
288, and will fall to 263. Sequestration would reduce those much further.
Cyber warfare and China, which is building a navy to challenge the United States
in the Pacific, do not shift US security challenges from one venue to another
but rather add to them. Specifically, US and allied dependence on Middle East
oil will continue for another generation—even with the best efforts to develop
alternative energy resources—and US naval assets cannot be shifted from the
Persian Gulf to counter China’s buildup in the Pacific. Economic and political
upheavals in Europe and North Africa make the US naval presence in the
Mediterranean and North Atlantic even more vital.
Current Chinese military spending is only about 17% of US base budget outlays,
but China’s currency is widely acknowledged to be undervalued. Applying IMF
Purchasing Power Parity exchange rates, Chinese spending is 27% of the US base
budget. Based on recent growth, China’s military spending would be 66% of US
levels in 2021 without sequestration, and 60% with sequestration.
China does not have troops, aircraft and naval assets tied up around the world
with established commitments, and with defense spending at 60% of US levels, it
will seriously challenge the US guarantee of security to Taiwan, Japan and even
To get the economy going and meet US security commitments, the budget deficit
must be tackled, but that begins with finally recognizing Social Security,
health care and education must be reformed to absorb fewer not more national
Super Committee Must Find $1.5T: The Super Committee must find $1.5T in cuts over the next decade and CNBC's John Harwood has the details:
Professor, Robert H. Smith School of Business, University of Maryland,