South Dakota Senator John Thune.

Our Fiscal Dilemma

Feb 28, 2013

By Ken Blanchard

Senator John Thune argues in Politico, a major e-zine, that the nation’s fiscal problems cannot be solved by tax increases.  As Senator Thune observes, Congressional Democrats, including House Minority Leader Nancy Pelosi, seem to believe that we don’t have a spending problem but only a revenue problem.  Translated into wishful thinking, the lingua franca of modern governments, this means that we don’t have to cut spending at all.  We only have to rake in more money in taxes. 

Senator Thune points out that this is nonsense.  “Simply put, tax revenues are increasing, and as a percentage of GDP, will exceed the 40-year average over the next decade without any of the Democrats’ proposed tax increases. Yet Washington has been running trillion-dollar deficits the last four years and the national debt will balloon from $16.5 trillion today to $26 trillion ten years from now.” 

Simply put another way, given current federal programs spending will increase faster than revenues even if revenues increase well beyond the levels of the last forty years.  It is possible that we could increase revenues more than they are not projected to increase.  It is also possible that we can’t do so.  Beyond a certain point, taxes eat into economic growth.  Taxes absorb wealth that would otherwise be available for investment, not to mention hiring additional workers who might then have incomes to tax.  Precisely how high the tax rates can go without depressing economic growth is uncertain. 

What is clear is that if we keep on the path we are on now, taxes will never catch up with spending.  The biggest fiscal problem we face is a consequence of our massive entitlement programs.  President Obama sort of acknowledged this in his State of the Union address. 

“The biggest driver of our long-term debt is the rising cost of health care for an aging population. And those of us who care deeply about programs like Medicare must embrace the need for modest reforms. Otherwise, our retirement programs will crowd out the investments we need for our children and jeopardize the promise of a secure retirement for future generations.”

By “programs like Medicare” the President presumably meant Medicaid.  He did not mention Social Security and other mandatory spending.  Add the three together and you get about half the federal budget and more than twice the budget for national defense.  All three are growing at rates that cannot possibly be sustained for very much longer.  Sort of acknowledging the problem is sort of the first step to doing something about it.  If you expect the President to sort of take the next step, don’t hold your breath.  He has never actually proposed even “modest” reforms to these programs.  I don’t expect him to do so in the future. 

Senator Thune is right about Congressional Democrats.  They are in denial about the nation’s fiscal dilemma.  The same is true of the White House.  We aren’t going to face the fiscal dilemma until the roof caves in.  At that point, the real pain will begin. 

Editor's Note: Ken Blanchard is our political columnist from the right. For a left-wing perspective on politics, please look for columns by Cory Heidelberger every other Wednesday on this site.

Dr. Ken Blanchard is a professor of Political Science at Northern State University and writes for the Aberdeen American News and the blog South Dakota Politics.