Shared Sacrifice for the Budgetary Mess

What’s wrong with this picture? The country has gone from a projected surplus to deficit in just four years. The $9.4 trillion swing from surplus to deficit threatens significant budget cuts in a range of domestic programs — from health care to housing — that tens of millions of Americans rely on every day.

A number of factors have brought us to this point. Starting in 2001, the nation underwent the largest peacetime budgetary deterioration in its history, from an annual surplus of over $200 billion to annual deficits that were (and still are) even larger. The economic downturn caused part of this budgetary damage, but so did tax cuts and spending increases enacted by Congress. And of those actions by Congress, by far the costliest was the tax cuts Congress passed in 2001 and 2003.

When the tax cuts are fully in effect, their annual cost will roughly equal everything the federal government spends on housing, veterans’ programs, agriculture, and homeland security combined.

The tax cuts helped push federal revenues down to historically low levels when measured as a share of the economy. This year, revenues are rebounding somewhat but are still expected to be below their average level during any of the last four full decades (1960s-1990s). And this year’s deficit, while smaller than had been predicted, will still top $300 billion.

Policymakers are beginning to acknowledge that the deficit is a serious problem. But the Administration and congressional leaders want to address it entirely by cutting spending. They have rejected the idea of reconsidering the recent tax cuts, and in fact are calling for new ones.

Most notably, Congress is considering permanently eliminating the tax on large estates, or shrinking it so much that it would bring in only about a tenth as much revenue. Repealing the tax would cost more each year than the federal government spends on homeland security or K-12 education, yet would benefit only a very small group of the nation’s wealthiest households.

At the same time Congress continues its tax-cutting binge, it is considering reductions in key government programs. Under Congress’s budget plan, Medicaid, which provides health coverage to roughly 50 million Americans, faces up to $10 billion in cuts. Food stamps and agriculture programs are slated for $3 billion in cuts. The part of the budget that includes education, environmental protection, veterans’ health care, and many other programs would be cut by growing amounts in each of the next five years, with the cuts reaching more than 11 percent (after inflation) by 2010.

If these don’t sound like the right priorities for our government, they aren’t. What’s lacking is the concept of shared sacrifice, the central ingredient of the successful deficit-reduction efforts of the early 1990s. Both in 1990 (under a Republican Administration) and in 1993 (under a Democratic Administration), the federal government adopted balanced plans to reduce the deficit through a combination of higher revenues and lower spending.

That approach could work again, once our leaders acknowledge that unaffordable tax cuts have helped create our budgetary mess and that new revenues need to be part of the solution.