The Columbus Dispatch...
Deficit hole deeper than you may think
By Jack Torry
Sunday August 7, 2011 

WASHINGTON — Here are a few ways to illustrate how deep of a hole the federal government is in. 

If Congress had eliminated the entire Department of Defense at the beginning of this year, the government would still run a deficit. 

Don’t want to cut defense? Try Medicare, which is expected to spend $557 billion this year on health care for the elderly. That still leaves a deficit. 

How about a tax increase for families earning more than $250,000 a year? That yields about $700 billion during the next decade, which means the government would still be in the hole. What about eliminating all the 2001 and 2003 tax cuts for every income group? That produces $3.7 trillion during the next decade, which is not enough to wipe out the deficit. 

Even in the aftermath of the sweeping deal last week to reduce the federal deficit by nearly $2.5 trillion during the next decade in exchange for an increase in Washington’s debt ceiling, the federal government is projected to add at least $6 trillion to its already bloated publicly held debt — government securities and bonds held by individuals and foreign governments. 

The cuts in the debt deal weren’t deep enough, according to Standard & Poor’s. On Friday, the credit-rating agency downgraded the nation’s rating a notch from the highest level, AAA, for the first time, which could make federal borrowing more expensive.“People may have some sense that government overspends, but they just don’t understand the numbers — the numbers are so beyond the pale,” said Ken Mayland, who operates Clearview Economics, an economic-forecasting company in Cleveland. 

Eliminating government waste or making some minor adjustments simply will not do it. Congress could freeze its salaries for the next three years, but that saves just $6 million. The federal government could save $10.4 million every year by reducing the number of limousines it owns. 

Instead, budget analysts say, lawmakers will have to make a broad array of highly unpopular choices, such as scaling back the growth of the rapidly growing entitlement programs of Medicare, Medicaid and Social Security, slashing defense spending, and raising taxes. 

“Given known demographic trends, rising health care costs, realistic economic growth rates, and interest rate risks, it is unrealistic to expect that federal deficits can be eliminated through reduced spending alone during the next 10 years,” wrote David Walker, former U.S. comptroller general, in an email. 

Walker is the founder of the Comeback America Initiative, a Connecticut-based organization that champions lower deficits. 

“While spending is out of control and must be reined in, we will also need to pursue comprehensive tax, regulatory and other reforms that can generate more economic and job growth,” Walker wrote. 

Ned Hill, a professor of economics at Cleveland State University, said, “You aren’t going to deal in any serious way with the deficit if you don’t deal with entitlements. 

“Medicare has to be means-tested,” Hill said. “With Social Security, the retirement age is going to have to go from 67 to 70 years. If you don’t do that, you are not being serious. It’s all a charade.” 

The dreary fiscal outlook is one reason why many financial analysts were dissatisfied with the debt-ceiling agreement. Most of the proposed cuts come from the federal government’s discretionary account, which is what Congress agrees to spend every year on programs such as defense, education, criminal justice, housing and agriculture. 

But that is a fraction of total federal spending. The majority of the budget is consumed by mandatory spending — Social Security, Medicare, Medicaid (a state-federal program that provides health coverage to the poor) and interest on debt. 

By 2021, the nonpartisan Congressional Budget Office projects the government will spend more than $4 trillion on mandatory programs, compared with $1.2 trillion on discretionary programs. 

“It really kicks the can down the road a little more than I would have hoped for,” Lee Ohanian, a professor of economics at the University of California, Los Angeles, said of the debt-ceiling agreement. 

There is no shortage of ideas on how to eliminate the deficit. Sen. Tom Coburn, R-Okla., unveiled a plan last month that would slash deficits by $9 trillion during the next 10 years. He would cut $3 trillion in entitlement spending, $1 trillion in defense spending and $1 trillion in tax subsidies, such as those for ethanol. 

Coburn sprinkled his plan, which he calls “Back in Black,” with a variety of small cuts as well. He saves $4.9 billion during the next 10 years by reducing government travel, advertising and printing, $4.7 billion by eliminating the White House Office of National Drug Control Policy, and $280 million a year by killing the Juvenile Justice and Delinquency Prevention programs. 

The Comeback America Initiative last month released its own report called “Restoring Fiscal Sanity,” which calls for gradually raising the Social Security retirement age to 69, converting Medicaid into a block grant for the states, and cutting defense spending. 

In addition, the report calls for Congress to let the 2001 and 2003 tax cuts expire as scheduled on December 31, 2012. Instead of renewing them, the report calls for sweeping tax reform that would eliminate scores of loopholes and substitute lower tax rates. 

Still others warn that cutting spending and raising taxes cannot balance the budget unless the government adopts policies to boost economic growth. They point out that continuing the 2001 and 2003 tax cuts could hamper the economy at a time when the government desperately needs more tax revenue. 

“If we had a 5 percent unemployment rate, you would have a lot more people working and paying taxes, which would narrow the deficit a great deal,” Mayland said. “If we could achieve full employment — and that’s a big if — then you could probably fix the deficit problem by eliminating spending.” 

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