Commentary: Debt ceiling fiasco doesn't solve U.S. debt problems

The Lexington Herald-LeaderAugust 9, 2011 

If your home caught fire, would you put out the flames, or ignore them and focus on fixing a leaky pipe that could eventually flood your basement?

You would call firefighters, of course, and deal with the pipe after the emergency had passed. Unless, that is, you were a member of Congress.

Think of government debt as a pipe that has been springing leaks for a decade. If not fixed, it will eventually ruin the house. The fire in this analogy is America's stagnant economy and high unemployment rate.

With that in mind, here is the best way to describe what Congress and President Barack Obama did last week: They wrapped tape around a small piece of the leaky pipe and poured gasoline on the fire.

The debt-ceiling fiasco did little to solve America's real debt problems, although they were a start. But the bipartisan compromise will make our economic slump worse instead of better. Fears of a relapse into recession sent stocks plunging last week in the steepest market slide since October 2008.

The only realistic way to reduce government debt is to cut some spending, increase tax revenues, bring down soaring health care costs and make long-term adjustments to entitlement programs that will put them on sound financial footing. It is not rocket science; more like basic plumbing.

"We don't have a revenue problem!" Republicans like to say. "We have a spending problem!" They are only partly right.

We do have a spending problem. We have committed what could become $3 trillion fighting wars in Iraq and Afghanistan, and now we're messing around in Libya and who knows where else on the sly. The military industrial complex spends untold billions on high-tech weapon systems we don't need. Waste and fraud abound.

The same skyrocketing health care costs that are breaking families and businesses are making the Medicaid and Medicare programs unsustainable. Social Security must cut benefits, raise the dedicated tax or both.

But we also have a revenue problem. Sorry, Tea Partiers: you may think you are "Taxed Enough Already," but you are taxed less than you have been in decades.

Thanks to huge 2001 tax cuts, plus tax breaks and loopholes for special interests, tax revenue as a share of gross domestic product is at its lowest point since 1950. After reaching a peak of 20.6 percent in 2000, it is now 14.8 percent, according to an analysis by the Center for American Progress.

The United States has lower taxes than most developed countries, especially for wealthy people and corporations. Top marginal tax rates, tax rates on investments and corporate tax revenues as a share of GDP are the lowest they have been since World War II.

Trickle-down economic theory — what President George H.W. Bush famously called "voodoo economics" — won't revive the economy. It will just continue a 30-year trend of stagnant middle-class wages and huge income growth for the rich.

A big reason America's economy is stalled is that too many average people don't have jobs. Many who do have jobs still don't have much disposable income. Until a lot more people have more money to spend, the economy won't recover.

Republicans' obsession with paying down debt — and Democrats' willingness to cave in to them — will only make the economy worse, at least for the next year or two. Republicans hope to use that for political advantage. Democrats seem scared of their own shadows.

Since banks and corporations have recovered, neither political party seems to care much about the rest of us. I guess we know who they really represent.

This obsession with reducing debt in a weak economy risks a replay of the malaise Japan suffered in the 1990s when it followed that strategy. The same thing happened here in 1937, when debt-obsessed politicians stopped much of the New Deal spending that was getting America back to work from the Great Depression. The result: a double-dip depression that didn't end until World War II.

Political leaders need to stop admiring their taped-up pipe and notice that America's house is burning down.

ABOUT THE WRITER

Reach Tom Eblen at teblen@herald-leader.com. Read and comment on his blog, The Bluegrass & Beyond, at Kentucky.com.

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