The press is trumpeting "good news" about the federal deficit because this year it is going to be lower than previously projected. The government has received more revenue, coming from tax hikes and a recovering economy, and done less spending, because of the sequester. Some commentators say this means we are now on the path to fiscal stability and don't have to worry about deficits any more. I disagree; just because a problem becomes less threatening in the short run doesn't mean it's not still a problem in the long run. Quoting Robert Samuelson, the situation has merely "gone from horrid to awful."
Running a deficit of any size still means an increase in the national debt. Many people think the two are the same thing, but they are not. A deficit occurs when government overspends revenue in any single year; the national debt is the accumulation of all the deficits of all prior years. The best way to measure the size of the debt is to compare it to GDP — the total size of the economy — and our current debt-to-GDP ratio is at an unprecedented high for peace time. The only time when it has been higher was during World War II.
And while this year's approximately $700 billion "lower" deficit looks great when compared to the $1.4 trillion deficit of fiscal 2009, the worst year of the recession, it's still nearly four times higher than the $161 billion deficit posted in fiscal 2008, before the financial crisis hit. No one should be comfortable with $700 billion as the new normal.
So what's the solution? Tax the rich still more, as the left demands? Don't rely on that — every analysis shows that there aren't enough "rich" to tax to solve the problem.
Cut government spending across the board, as the right demands? Be careful — that could hurt, not help. For example, consider the crumbling highways and collapsing bridges now in the Interstate Highway System. Unless we spend more money on them, not less, they pose a serious threat to the vitality of an economy that depends on the ability of trucks to move goods across the country efficiently.
Cut entitlements, as the Europeans have been forced to do? The political backlash, just at the suggestion, has been fierce. Our financial dilemma is a very hard problem to solve.
We should start by adopting economic growth as our primary goal. John F. Kennedy said, "A rising tide lifts all boats." That's not entirely true — a growing economy doesn't automatically solve all problems — but it sure helps. To get our growth rates back to historic levels, we need to do four big things, none of them easy:
(1) Rewrite our impenetrable tax code — it needs to match the realities of a 21st century global economy. (2) Re-examine our hodgepodge regulatory regimes — they need to be guided by cost benefit analyses tied to economic growth. (3) Realign our outdated spending priorities — they need to match the realities of the need to spend more in some areas and less in others, instead of just slashing across the board. (4) Readjust our entitlement programs — they need to match the realities of our changing democraphics while still taking care of those in real need.
To those who say these recommendations are insufficiently compassionate, I reply: The poor are the ones who are suffering the most at present and who will be hit the hardest if things switch back from "awful" to "horrid." More than anyone, they need something better than a sluggish economy where a $700 billion deficit is considered "good news."
Robert Bennett, former U.S. senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.