Sunday, December 2, 2012

Does the Deficit Matter?

Recently, two liberal economists, Robert Reich of the Clinton Administration, and Paul Krugman, of the New York Times, have complained that the budget deficit doesn't matter. This is hardly a liberals-only position since George W. Bush's administration was reputed to have sat around the White House War Room saying the same thing. Indeed, Mr. Bush and the Congress began running deficits within months of his winning the 2000 election. Bill Clinton and the Congress claimed to have balanced the budget for the two or three years prior to that, and it is against this same budget formula that Mr. Bush began embarking on spending imbalances.

The takeaway from the new rants by Reich and Krugman is that there is no reason to have erected the fiscal cliff that President Obama and the Congress are bickering about. The government prints money, Krugman argues, therefore it cannot go bankrupt. This is actually a true statement. Even the spirit of the statement, the notion that the United States does not need some sort of emergency reaction to the deficits, is true. The fiscal cliff was political theater for the 2012 Presidential and Congressional elections. With those settled, there is no need to immediately undercut Medicare, Medicaid, Social Security, or Defense, as there is no need to choke off whatever recovery we have going with stifling new taxes.

Unfortunately, the deficit does matter for two other reasons: First, deficits have been used for most of the past 40 years to feed the growing entitlement mentality harbored by many Americans. Earning the big bucks, those reflected in the American standard of living, is hard, and the country has made it. Why not ask those fat cuts to pay for the difference between what an American earns and what he or she collects? Do you know who the fat cats are? They're those mostly mythical people who have lots of extra money they don't deserve. Because these cats are essentially fictional though, there are not a lot of real people to ask to pay more so we can earn less.

Second, the rest of the world won't keep investing in a dysfunctional system that rewards mediocrity and largess forever. Either somebody has to actually earn most of the money that is provided to Social Security recipients, Medicare and Medicaid beneficiaries, and for defense outlays or one day our political and economic systems will be recognized and disregarded as the shams they will have become. No one can predict quite when the rest of the world will make other bets if the entitlement fest continues, but let me guess about twenty-five years. By this time, Medicare will long be insolvent and Social Security will be in imminent danger of collapse.

What makes sense now then, is to say enough is enough. But when we say that, as Krugman and Reich point out, there is no need to drive the economy off of a fiscal cliff. Taxes should be raised a little bit on everyone who received a tax cut over the past twelve years and let's face it, that's everyone. Spending should be reined in. This means that Social Security benefits should become fully vested later and Medicare should be supplemented more with private insurance plans. Additionally, defense savings opportunities should be explored and Medicaid should be offset with higher uninsured taxes. While this may be painful, it does not have to be a drive off of a cliff--fiscal or otherwise.

33 comments:

Mariah Hart said...

Essentially, from a pure accounting stand point of course the deficit matters. If the average American were to write checks that exceeded the amount they had available in their checking accounts, two things would definitely occur. The first would be a series of bounced checks and the second event that would most likely occur is your arrest and incarceration for issuing and uttering. Fortunately, for the United States government does not have to worry about arrested because they can simply print more money. The downside is that we do have creditors, mainly other countries that invest in the American economy and expect a return on major investments. We also owe trillions of dollars to the Chinese government who has made a habit during the past 10 years of buying outstanding debt. Thus, crediting a dual problem. The United States has become a De-facto debtor nation to the Chinese government. Resulting in a reduction of our credit rating, the first time in almost 100 years. We are no longer the premiere Economic standard of the world, as a direct result of the deficit.

Anonymous said...

Deborah Sheffield

Deficit matter to me because the rich need to pay a little bit more in taxes. I don't belive there is a fiscal cliff or curb. The United States congress would never let the country go into a deficit crisis. I wonder why the Treasury just can't make more money to pay our debits and give each household more money to spend. Once the money is given to each household it would be put back into the economy. Maybe I need to quit my job because my taxes will be higher than my paycheck.
Hopefully the deficit matter will end very soon.

Anonymous said...

I can understand that the deficit may not seem important right now,but I can agree that it will be of extreme significance in the future. Although it will matter in the future I feel that this "fiscal cliff" that the president and congress has come up with is a bit drastic. Action should be taken but not all at once. Whether the country wants to face it or not taxes will need to be raised and spending cuts will need to take place in order to make any progress against the deficit. I agree entitlements are one of America's biggest problems and it can lead to America having to go through what Europe is currently going through if we don't do something about the deficit. America should slowly and gradually begin to raise taxes and cut spending opposed to doing it all at once.

-LaFrancis McPherson

Anonymous said...

Kelly Crafford

The deficit does matter . Even though the united states will never " run out of money " , they wstill need to rein in their spending. the true recover for our defict would be cutting spending and allowing growth for our nation.

Anonymous said...

Good Afternoon,
I believe there's a problem with too much spending for private getaways on Americans dime. I believe there should be higher taxes on those who have their money in other countries banks to avoid paying taxes in the U.S. Also I believe the richer should be taxed more they find ways to avoid paying taxes by utilizing CPA's (no offense to any CPA's}. Some of the private institution should cut the cost of medications so more people can afford them. I don't believe the U.S. will fall off a cliff per say, spending should not be cut for the military. They should get an increase. Private parties in the government should be cut. The salaries for body guards should decrease. Just my thought Catalina T acc-211 m-w class 1.-2:15

hannah bradshaw said...

There is no doubt in my mind that the deficit does matter. To say that our deficit is irrelevant would be the equivalent to saying I can run up as much credit card debt as I choose and never really suffer repercussions for my bad money decisions. The spending in our country is out of control. As much as I wish taxes should not be raised I believe for our country to continue functioning and thriving we must be realistic and raise taxes fairly on everyone. I'm certain the majority of Americans would choose for taxes to be raised and ensure there WILL BE an economy, with the same freedoms we enjoy today for our children, rather than a plan (or lack there of) that self destructs from lack of adequate funding and organization.

Kristi Aderhold said...

From an accounting viewpoint, the deficit does matter. While I agree that taxes should be slightly increased I question if our economy can handle a tax increase. Would it be more beneficial to hold off on a tax increase another year to allow continued growth of our economy? I also feel that there are many government cuts that would be a greater benefit to our economy that would offset the fiscal cliff. Instead of annual pay increases for goverment employees, why not a decrease? I am not talking civil service or the military service men & women, but those in higher offices. Would a 5% decrease & a freeze in pay create a more beneficial solution than cuts to programs that are needed by all Americans?

Kristi Aderhold said...

From an accounting viewpoint, the deficit does matter. While I agree that taxes should be slightly increased I question if our economy can handle a tax increase. Would it be more beneficial to hold off on a tax increase another year to allow continued growth of our economy? I also feel that there are many government cuts that would be a greater benefit to our economy that would offset the fiscal cliff. Instead of annual pay increases for goverment employees, why not a decrease? I am not talking civil service or the military service men & women, but those in higher offices. Would a 5% decrease & a freeze in pay create a more beneficial solution than cuts to programs that are needed by all Americans?

Lance Naringi said...

Should our nation's rising debt be of alarming concern to us? With our rising debt to GDP ratio I believe it should be. Some have argued that the Treasury could always print more money; however, printing large amounts of currency could lead to dangerous levels of over saturation in the market and a further decreased value of an already weak U.S. dollar. Unfortunately our current 16 trillion dollar debt hole has coincided with the worst economic downtown since the Great Depression. Most economists agree that fiscal support in the form of government stimuli is an effective tool in resuscitating our economy, but any type of large fiscal stimulus will significantly add to an already outrageous debt. So how do we reduce the debt? Democrats and Republicans see the need for the federal government to create additional revenue in order to pay down the debt. President Obama and Democrats believe that higher income taxes on individuals making more than $200,000 a year and families making in excess of $250,000 is a good starting point. The political right argues that any type of tax increase, especially to those in the top income bracket commonly referred to as "job creators", would be detrimental to our economy and would result in the loss of millions of jobs. History perhaps tells us another story all together. During his first year in office President Clinton raised taxes. Despite these higher tax rates our country saw its largest peace time economic growth in its history, creating 22.7 million jobs and setting the nation on a path to a budget surplus. The growing disparity between the wealthy and middle class Americans is proof that given large tax breaks, the rich will not reinvest that money in effort to create new jobs and higher wages but instead keep that money for themselves and their extravagant lifestyles (see John Schnatter). The Republican solution to the debt is one of fiscal conservatism and the closing of tax loopholes. They believe the only way out of the hole is massive spending cuts. We've seen large evidence of this at state levels with cuts to police forces, teachers, fire fighters and other government jobs. Now the right has set their sights on Medicare, Medicaid, Social Security and other federal programs. However, taking money out of an already struggling economy could prove to be damaging. Interestingly enough the right seems to preach fiscal conservatism only when it applies to programs they themselves are not in favor of; while they too have sacred cows they are unwilling to make cuts to. A prime example of this is defense spending. Of the eighteen nations with the largest defense spending, the U.S. being number 1, the United States spends more on defense than the next seventeen nations combined. I, as an active duty Marine, know the importance of a strong well equipped military but in today's world of asymmetrical warfare having large bloated forces is not the answer to our security. The elimination of tax loopholes does not in any way guarantee increased tax revenue. The same millionaires who are now paying historically low tax rates would continue to find additional loop holes. So what is the answer to our problems? Perhaps it is time for some shared sacrifice. Neither taxes increases nor spending cuts exclusively are reasonable solutions, but a combination there of is most likely our best course of action. Undoubtedly we can find wasteful spending in many places, but it is our responsibility to make sure that cuts made to any government program whether they are defense spending or Medicare do not adversely affect that given program and the American public. A disciplined selection of which programs we are making budget cuts to is required. The middle class has taken huge hits in the last ten years, its time the wealthier citizens of this country tighten their belts and pay a higher percentage in taxes. The elimination of tax loopholes may help, but the wealthy would undoubtedly find other ways in which to avoid paying taxes. A minimum flat tax could remedy this.

Anonymous said...

Garrett M
The government was created by the people for the people with the purpose of maintaining our independence, but the growing deficit is allowing many of the world's economically competitive nations to purchase our dependence, dollar by dollar. The government is attempting to shrink the deficit, but it is important to realize this is actually an attempt to slow the growth rate of the deficit, not the amount of dollars in debt. In this sense, it may be noted that the government is still increasing debt each year, but the rate is slowing down, and like hitting the brakes on a car that has been going over the speed limit, it's going to take awhile to stop. Traditional methods of decreasing the deficit include tax increases and spending cuts, but these methods are consistently controversial. Besides, who are the people really being affected by tax increases? Bill C. noted in his blog that wealthy people can afford professionals to find loopholes in their taxes, and it should also be noted that citizens in low income tax brackets compose a very small percent of the federal taxes collected. It is often proposed that the wealthy citizens can afford to pay more taxes than lower income citizens, but the distribution between the two is gross already. According to the Congressional Budget office,the highest 20% of incomes composed 67.9% of federal taxes collected in 2009, while the middle 20% of incomes contributed 9.4% of the collected taxes and the lowest 20% of incomes accounted for only 0.3% of the collected federal taxes. The lowest income families are hardly contributing to the tax collection and the demand for higher tax rates on the wealthy has turned into a sad version of Robin Hood. Spending cuts may also assist in decreasing the deficit, but political parties do not always agree on which programs should receive the spending cuts. While spending cuts may be difficult to agree on, most people like savings. The modern trend of "going green" has provided an explosion of technology in energy saving devices that increase product and process efficiency to reduce cost. A market for new energy efficient technologies could provide an opportunity for growth, ideally magnifying the number of businesses producing, selling and buying the new products. Like any investment, the technology to increase efficiency comes at a cost, but this particular cost features double rewards in the sense that if the technologies succeed in creating a market and reducing cost as intended, there will also be the reward of a cleaner planet.

Carrie B said...

I see many good comments here both for and against fixing the deficit. In my opinion, taxes should go back to the pre-Bush era. All of the tax cuts and other "entitlements" should be allowed to expire. But as a wise professor once said, no one who wants to be re-elected will make the tough decisions. I am hopeful that President Obama will take the initiative and do this, then most importantly, use the money to pay down some of the deficit. I am not one of the 1% who control all the money, nor am I one of the 47%, but I am willing to pay my fair share and hope all Americans will see this as the way to less deficit. At the same time there must be cuts in spending but where to make them is a choice I would not like to have to make. Good luck to the President, Congress and all other lawmakers!

Anonymous said...

I feel the deficit matters a whole lot, based on what you wrote in your post.If America don't take this thang for what it's worth, where'going to be in a bad way. I feel that if a company was doing bad with it's product I would not invest in it. So how are we to feel that other countery's want to invest as well as buy our products, if we don't get it together. Chris C.

Anonymous said...

Once again we are in the midst of political turmoil.
This time it involves weather or not the Democrats and Republicans will come to an agreement before the end of December. As always neither side wants to compromise concerning tax cuts and spending. As each day swiftly passes by, "Bush-era tax cuts are set to expire" at the end of the year.

But let's ponder for a moment, what are the consequences of this unsettling dilemma? What does each team expect to gain or lose through compromise?

Unfortunately who stands to lose the most if the fix it soon doesn't come.

Certainly not those who need to "get the balls rolling" so to speak.

Those mosetly affected by the cuts will suffer...The biggest being the middle class.

Some tax cuts that have been in place should be, "over the cliff" specifically speaking the 2% payroll tax cut.

Defense cuts are decreasing anyway because we aren't helping some banks to make money off of wars.

Within ranks the military are trimming their budgets by discreetly getting rid of those who are not in the right weight and measurements of the military.

Medicare cuts are expected to run deep. It's probably wasting money at some level anyway.

Concern for loss of jobs, businesses shutting down because marginal revenue doesn't equal marginal cost should be of great importance. If some businesses can re-budget,fewer workers will be hired cutting the biggest of spending which is labor.Without jobs unemployment will rise. As unemployment money run out the emergency unemployment benefits will be of no effect. We can see and project a spiraling down of the U.S. economy which will affect all of us.

Representatives...I plead the case of the American People there has to be compromise on both sides for we must all sacrifice if we are to experience growth and respect from other World Powers be it economic or otherwise.

Let us stop wasting time and make a Decision.

Freda H

Anonymous said...

The defeict does matter at some point you have to stop inflating a baloon that is getting ready to pop. We spend more money on things other than ivesting in our own country which is why I think as Mr. Conner pointed out the world won't keep investing in a dysfunctional system that cannot support it's self. We must stop the excessive spending and invest into our own economy to bring back growth.

Elijhah Magee

Collin Jeffers said...

I think the deficit matters more than most are willing to accept. Just because our government can print money doesn't mean that it would help. By having the convenience of printing our own money doesn't mean it erases our debt. Our government needs to tighten down on it's spending. Most of our country's debt comes from out of control government spending. I think by raising taxes would help for a start. Another topic that has been brought to the table is allowing the debt ceiling of acceptable debt to be raised. By allowing that to happen would be unacceptable, this would just make the big problem much larger.

Allison J. said...

The deficit definitely does matter. The United States cannot technically run out of money, because our goverment can just print more. However, the more money we print, the less our dollar is actually worth. Our goverment should cut down on its spending, but as Mr. Conner has told us cutting spending has not and probably will not be done. Therefore, it looks like tax increases is what we will be seeing. --Allison J.

Anonymous said...

Devon J.
I believe the deficit does in fact matter. This is because the government can't simply print more money, theoretically they can, but in doing so they raise inflation. This causes the value of the dollar to decrease. Since a deficit is spending money that does not yet exist, when money is printed you would need more bills to pay back the amount you borrowed. Therefore, you would be spending the more in the long run because it also cost money to print more money.

Javanti S. said...

The deficit is an outcome; it's not a policy tool. The current deficit happened because of the weak state of the economy and because of the international value of the dollar. The notion that you're going to get rid of deficits by cutting spending and raising taxes is false. It's an uninformed position. As you raise taxes and cut spending, you weaken the economy.It's not that it matters whether it goes away or not, but the point is, it's bad policy.

Anonymous said...

The deficit is an outcome; it's not a policy tool. The current deficit happened because of the weak state of the economy and because of the international value of the dollar. The notion that you're going to get rid of deficits by cutting spending and raising taxes is false. It's an uninformed position. As you raise taxes and cut spending, you weaken the economy.It's not that it matters whether it goes away or not, but the point is, it's bad policy.

Javanti Sparrow

Anonymous said...

The deficit affects us all. I agree that the wealthy does need to past more taxes. Ways to put money back in the economy should be looked into, for example stimulas checks would be a great idea and way to bring money back to our economy.Spending cuts does have to fall in place at some point.Whatever the actions taken it can not be sprung all at once. There is plenty of money so basically it's a matter of keeping America's money here and not spending elsewhere.
Tenesha A.

Jesse Jacoby said...

The deficit does matter! at somepoint to make money, it'll cost more than the money we print, and it wouldnt make any sense to print money at all. Also, the statements some make about "Taxing the rich" does not always work. What do the rich do? they invest! But like Mr conner said many times before, they are also cheap! so why in the world would they stay in a area that tax way to much? for some, a sense of obligation, to make America a better place, but not everyone has the same mindset. Some do move! Some move to other states, another move overseas, and that isn't helping the probelm, it's just making it worse. If we treuly want to stabilize our deficit, the only thing i can come up with is to cut gov. spending, and broadening our flows of tax, not just the rich.

Katharine D. said...

I don't agree with Reich and Krugman. I do believe that the deficit matters. We are never going to run out of money because we constantly make it. There is no plan to fix the deficit. We are always going to be in debt, no matter what. This deficit reflects a spending problem, not a revenue problem. I don't think the tax cut should be extended. People should should have their taxes raised, especially the rich. Those who make more money, should invest more money in the way of taxes.

-Katharine D.

Kenda B. said...

I feel like deficit matters, but then again it doesn't matter. If the government prints the money, why should we go bankrupt? There shouldn't be a reason. Why is there a problem in the white house about tax cuts? The economy will get worse if taxes go up, and that's not good. Social Security shouldn't go up because of the deficit. I don't think it should go up at all.

Anonymous said...

Kyera V.

I do believe that the deficit matters. I think that it is a very tell-tale sign of how our economy is doing. If we continue to spend more money than we are making, as a country, then it will eventually cause our economy to collapse. Yes, money can easily be printed off, but money is just used as a physical tracker of how well a person/country is doing. If our deficit continues to grow it will cripple our country.

Lynette H said...

Yes the deficit does matter. First off, the deficit sets the tone for other decisions that are made in the economy and these things rely on the deficit and the budget.(education and healthcare programs) It's a bit absurd to say that it's not important. Because additionally, the longevity of the economy depends on whether or not we are able to (quickly)come up with a (better) way to fund and balance the economy.

Cameron C said...

The deficit has affected us over the years. My honest opinion is it more than likely will not get resolved. There are somethings we can do to help with the deficit and that is to cut spending somewhere. Now I am not 100% sure but money we spend on oil in the middle east we can conserve that money and use our own oil reserves. We have so much oil on standby that we do not need to get oil anywhere else at this point. That is just one we can cut spending on. I can do some research and look up more things to help bring the deficit down. I do not like the idea of asking to raise taxes and making people give more money. I feel they earned that money and why should they have to give a precent of it back to the Government? To me that sounds like the Robin Hood affect, taking from the rich and giving to the poor. But in this case it is upper and middle class giving to the rich. I feel there are other ways to get out of a deficit without taking away from the people that earned their money working jobs 10-12 hours a day. Again I believe there are alternatives to fixing this deficit.

Anonymous said...

I think that the government has spent a long time avoiding the deficit and now it will be harder to fix or atleast at a comfortable level. It is a scarry thought that America sits in the position of where my generation might not have a social security when we become eligable to draw.

Brianna Rivera ACC 212 online

Anonymous said...

I feel that the government has a big issue with spending. The government cant spend to the capacity that they spend now and expect everything to be ok. What I feel Americans should realize is that many programs that many people depend on will be cut and thats just a nature of the beast. I see where government say they will raise taxes but how will that fix government spending? I feel the government cant continue to put a band aid on the issue and expect everything to be ok. Yes it may fix the short term issue but what about in the future when this issue comes up again and be worse than what it is now. Fix the now and preserve the future. Like Mr. Green always say "you cant keep kicking the can down the road."


Chase B.

gale harold said...

I definitely believe that the deficit needs to be reduced. I also agree that it doesn't have to be such a jarring occasion, but should be introduced in increments. However I do not agree that everyone should absorb the cost. I do believe there are plenty of wealthy Americans that do not shoulder there fair share of the tax burden. I don't take issue with raising taxes on the top 2%. Would they even notice it? Would they purchase one less home or tax shelter? Perhaps not buy a 3k or 4k handbag? More than likely they would cut back in a way that would not affect them at all, such as charitable donations. Personally, I think it's greedy. If I were in a position that I had to pay more taxes to help someone less fortunate or for my country I wouldn't have a problem, but then again its easy for me to take that position because I'm not in it.

Anonymous said...

Deficit does matter because when it come to paying taxes i think people who make more should pay a little more. Not saying they should have a drastic increase but enough to balance it out. Social security should not be raised because that will effect the lower class. Then when it's time for our generation to get recurve it there's a possibility we may not be able. Sheena T.

Anonymous said...

The deficit is impacting the economy and needs to change. Slightly raising taxes is understanding if the tax dollars are used wisely. Allowing the cost of living such as gas and food to go down in cost can make room for the higher taxes. the raise of taxes can only be temporary so we can flip the deficit. We need to understand that we can't do it alone not can the government do.org alone, we need to work as a team and/or nation. Tim Goodwin acct.211

Anonymous said...

As mentioned early in your post, the United States is not required to take immediate action in order to offset a " Fiscal Cliff Deficit." Although, the American nation does face a much more terminal crisis. The sense of entitlement has become an epidemic. It has infected our economy and our families. I would venture to state, Americans are not so much facing a fiscal cliff, on the contrary, our situation resembles an Entitlement Mountain. This is an obstacle which I am not confident that the American nation is prepared to get over.

Matt Hooker

Anonymous said...

Sonya Tardy says:
As a native of New Jersey, I am accustomed to the tolling system. There are several tolling systems along the New Jersey Garden State Parkway that start about 50 cents that provide drivers with easy access to several local counties. Our tolling systems provide drivers with two options for paying the tolls: the express travel and actual paying at a tollbooth. The express travel allows driver to maintain the appropriate speed of 75 miles per hour with an EZpass and the system charges their prepaid account. The booth does provide an option for drivers who do not have an EZpass or who want the personal interaction of someone collecting their money, New Jersey makes accommodations for them. However, drivers could avoid local tolls by driving through communities but it has a longer commute with the exception those who live on an inlet. Virginia move to employ a tolling system that is strategically place at the Hampton roads tunnel and Monitor-Merrimac Bridge tunnel that poses economic and social intrusions that should create more of concern rather than fear.
I think the placing of the Virginia tolling system does present a significant problem to its economic growth. Currently, Virginians have the ability to travel anywhere through Hampton roads with easy with the exception to peak traffic. Placing tariffs on local travelling poses the question on who will benefit from the tolling system. In NJ, the tolling system benefits the State and its citizens. An example of Virginia’s tolling system is the James River Bridge that turns out it is own privately. If this is an example of future tolling systems, we will no longer be submitting to only a government system but to a private entity. It appears that EZpass will be mandatory for drivers or face paying a higher toll rate without one. This is unfair as well. The economic growth with in Virginia will significantly affect by the tolling system. For, the tolling system is likely increase the cost of truckers importing and exporting from our area that will lead to an increase of prices on all items sold here. In addition, the toll fees will not be the same for everyone because certain individuals or groups will be giving a discount, which is another example of how the system will abuse citizens financially. Overall, it does appear that the tolls are a user fee instead of a tax because there are other entities like car tax to assist with paying for transportation. How much more funding does the state of Virginia need to pull from its citizens.
The tolling system will make it difficult for citizens to travel daily to different cities. With rise in the cost of living, people will have to make a decision on how they will afford their daily living and commuting work every day with tolls fees. Will they need to migrate closer to work if it requires people to pay a toll? Will people have to give up going to certain shops or limit how often they travel to other cities? Time will truly tell when it come into affect.