EA's US Politics and Economy Special: A Half-Time Reality Check on the Federal Budget

Continuing EA's special series on the US Government, politics, and the economy....

On Wednesday the White House finally announced that the Obama Administration will coordinate bipartisan discussions on America's debt and budget problems. Led by Vice President Biden, who played a major role in brokering the tax-cut compromise with Republicans last December, the administration hopes that face-to-face negotiations will help defuse the heated rhetoric preventing the passage of a budget bill for the current fiscal year.

US Politics: A Beginner's Guide to the Plans to Cut Government Spending

That's the welcome news. Just don't expect these talks to produce any agreement on long-term remedies for the fiscal crisis soon. While Republicans are nearly unanimous on the need for drastic cuts in government spending, Democrats by contrast enter the room with nothing to put on the negotiating table. These discussions will not begin in earnest until Democrats have resolved internally just what concessions they are prepared to make in reducing the deficit. Some insist that Social Security reform should not be included at the summit, with others believing they should fix the issue now to avoid more painful decisions down the road.

With a few weeks to go before these deliberations get serious,it is an apt time to review of EA's special series of posts on the US economy.

First, the basic facts. America has a debt problem. Even the world's largest economy cannot keep on borrowing money to finance government deficits between spending and revenue. Exacerbating this dilemma is the recognition that the United States will soon reach its debt ceiling, the point at which the government can no longer borrow money to pay for its obligations. This limit on the debt, set by Congress, is forecast to be reached in the next few months. Republicans are threatening to block any increase the debt ceiling;,forcing the government to live within its means. Democrats contend that this would not only cripple the supply of critical government services, but also lead to the shameful stigma of the United States --- unofficiallly --- being classified as bankrupt.

This debt situation has been caused by a decade-long growth in the deficit.Since last October the government has only been able to function because of a series of short-term continuing resolutions that authorise the government to keep spending.In the absence of a budget being approved, or no continuing resolution, the government will be forced to shut down all non-essential government agencies.

So why did Congress refuse to pass last year's budget? Republicans refused to countenance the levels of government spending requested by the President. They argue that government program funding must be slashed so that the deficit is reduced --- not the total debt, mind you, just the amount that is being added to it each year. The House of Representatives, which has the "power of the purse" and which now has a Republican majority, passed a bill that cut $61 billion from President Obama's budget request. That level of reductions is unacceptable to Democrats in both the Senate and the White House, and it stands no chance of getting enacted. Hence the continuing resolution passed on Wednesday that keeps the government functioning until midnight on 18 March./p>

This never-ending saga is in part the outcome of the Tea Party movememt's rallying cry that the government has grown too big, that it is spending too much and taxing too much to finance itself, leaving future generations a level of debt that is unsustainable.

The irony is that in succeeding with their fundamental message to dominate discussions in Washington, the Tea Party has started a conversation it might regret. America is facing a long-term debt crisis not because it funds National Public Radio or the Environment Protection Agency or aid for foreign countries, but because of its soaring spending on entitlement programs ---- the Medicare, Medicaid, and Social Security benefits enjoyed by aging Tea Party particpants.

The sad reality is many Americans do not understand the budget, or why the United States has a deficit problem. Thursday's New York Times (http://tinyurl.com/67cxoob) published an article that exposed some of the depressing confusions most Americans have with the reasons there is an annual deficit. Among the headline findings was: "When people were asked what percentage of the federal budget goes to foreign aid, the average response was 27 percent. (The real number is about 1 percent.) The estimates were essentially the same for Democrats, Republicans and independents."

Another answer, "63 percent of those surveyed believe the federal government spends more on defense and foreign aid than it does on Medicare and Social Security. (That's wrong.)"

So far wrong, in fact, that it is scary as well as depressing. America could decide to spend not one cent on defense and foreign aid spending next year, and this would not halve the projected deficit. Any way you look at the United States debt crisis, and the problem of annual deficits continually adding to that debt, entitlement spending must be reformed if the next generation of Americans is not to suffer for the sins of this one.

It may be that those who are arguing the debt is unsustainable are just doommongers, panicked needlessly by deficits caused by this relatively short-term blip in the economy. Undoubtedly the present deficit numbers have been made worse by more people receiving benefits from the entitlement programs, and less people paying taxes. But, even recognising that possibility, the numbers being presented in various reports on America's fiscal future are sobering reading.

The issue is only going to grow in importance over the next few months, and the partisan extremes in both parties are readying themselves for the mammoth struggle ahead. What we have seen recently are petty squabbles compared to the brouhaha that will erupt when the Americans from The New York Times poll finally realise what is actually at stake in the forthcoming discussions on the debt crisis.