Fiscal Folly

[kentuck]

http://www.prospect.org/cs/articles?article=fiscal_folly

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The economy is still very fragile, yet Washington seems more fixated on deficits than on recovery. Fiscal conservatives in Congress hope to hold recovery spending hostage for long-term caps on social outlay, and they have some company in the White House. Groups like the billion-dollar Peter G. Peterson Foundation are leading the charge.

For a quarter-century, Peterson has been exaggerating long-term costs of Social Security and Medicare. In truth, Social Security is close to balance -- its 75-year projected deficit is just one-half of 1 percent of gross domestic product. Medicare is seriously in deficit, but reform of Medicare consistent with high-quality health care depends on tackling the deeper drivers of medical inflation.


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According to The New York Times, 37 percent of the 2009-2012 deficit stems from the recession itself, because of revenue losses and increased automatic relief outlays. Another 33 percent reflects Bush-era tax cuts and Bush programs like the Medicare drug benefit (with its generous subsidy for drug companies). The military build up added 20 percent more. Only 7 percent came from the Obama stimulus; all other new domestic spending adds just 3 percent. The president should be helping citizens sort this out, not caving in to the fear-mongers.

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Despite the alarmism, the Congressional Budget Office projects that deficits will stabilize at about 3.2 percent of GDP after 2014 and that the public debt will plateau below 70 percent of GDP. That's well below the debt ratio during the boom years after World War II. Cut the average deficit to 2 percent, and the debt ratio comes steadily down. With progressive taxes, we can have our fiscal balance and our social spending, too.

More investment in children, workers, and public infrastructure can increase productivity, growth, and fairness. As a nation, we can afford those outlays without shortchanging the elderly. That's a much better road to recovery than using an extra-democratic commission to shackle social outlay that the county needs.

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