Budget fiasco harms U.S. economy

Decision just another short-term patch

Gordon L. Weil

In the middle of the night recently, while crises whirled around the world, the U.S. made a major policy move.

Not about Ukraine.  Not about immigration.  The Senate simply adopted a new temporary budget bill to keep the federal government running for six more months, setting up a crisis for just before the election. 

During the 1992 presidential election, a Clinton strategist emphasized the campaign’s focus: “It’s the economy, stupid.”  The government impacts the economy even more now through taxes and spending.  The budget matters.

It can’t seem to get the balance between them right, making borrowing money a major business of government.  The problem is that Congress and the American people like spending and hate taxes.  When it comes to Congress, that includes both Democrats and Republicans.

When the Democrats propose increased spending, they promise to pay for it by increasing taxes on the wealthy and big corporations.  When the Republicans propose cutting taxes for the same entities, they would slash non-military spending and boost borrowing.  When the two sides meet, they deadlock and must temporarily patch over their differences with more debt.

National spending falls into four major categories: Social Security, Medicare and similar programs, military, non-military and debt payments. 

Making payments on the federal debt should be beyond debate. The government has made commitments to lenders both in the U.S. and abroad.  They buy U.S. bonds, because the country always pays its debts. That has led to the American dollar serving as the world’s prime currency, contributing to the country’s role as a superpower.

Threats to America’s credit are caused by battles over the debt ceiling, but the dollar’s world role is also affected by the budget games. They raise concerns about the reliability of the U.S.

Social Security and Medicare are the so-called “third rail” of American politics.  Because these programs are so vital to so many, neither party wants to risk touching them.  They are financed by employer-employee contributions, but are nearing the point where those funds won’t cover the cost.

That leaves unpopular choices.  Raise payroll taxes or cut benefits or do both. The conversation about what to do is picking up speed as the shortfall gets closer.

Some Republicans, though not Donald Trump, want to increase the eligibility age for receiving Social Security, which would amount to a benefit cut.  A few Republicans even see these programs as “socialism” and would slash them.

Democrats would raise payroll taxes on higher income people.  That would not be enough, so they are driven toward using income taxes revenues.  If there were more workers, who would contribute to payroll taxes, it’s less likely these general funds would be needed.  That may explain why some Democrats support immigration.

There is another reason why immigration could have a positive, economic effect. China and Japan, with little immigration, are shrinking in population, and their economies suffer.   More people bring an expanded labor force and boost consumer spending.  The U.S. population will shrink without immigration, which could bring economic decline.

Social Security now provides more than half of the retirement income for more than half of its recipients.   The program may have become part of a national pension policy, not the short-term income supplement it once was.  Plus, people are living longer so more funds are needed, while there are fewer workers contributing.

House Republicans are right about the need for separate spending bills so each area of government activity gets needed attention.  But when they refuse to compromise, they leave Congress with a last-minute desperation bill.  Meanwhile, the Senate budget builders came up with separate bills, thanks partly to Sen. Susan Collins, a key Republican player on spending.

Both parties need to get more serious about dealing with the federal budget, both spending and taxes.  President Biden says he wants to raise taxes on the wealthy and has had some success, but a recent report shows he has actually cut taxes.  The GOP says it dislikes deficits, but beats the Democrats in creating them.  Trump was a top-flight debt producer.

No president in decades has submitted a serious and disciplined budget.  Budgets are usually political documents with no real future.  Many depend on impossible revenues, including Biden’s this year, undoubtedly leading to more debt.  Budgets also almost never review the ongoing need for past spending decisions, partly because cutting them may cost jobs.

The media is no help, having created a permanent political campaign.  With an eye on their reelection, politicians follow the almost daily polls that supposedly transmit the popular will. The trouble is that the polls focus on the short-term.

In the current budget system nothing changes, and last-minute patches are applied to keep the government in operation. Without improved leadership looking beyond the next election, the prospect is for another midnight budget fiasco.