2011 budget proposal
Today the 2011 budget proposal was released. In a nutshell, we are going to spend 3.8 trillion dollars, 1.6 trillion of which we are not going to collect in taxes. Or, to put it another way. Next year we are not going to be able to afford 42% of the things our government is going to spend money on.
Translated in terms of a family budget, this is the equivalent of saying: "this year we don't have money to spend on the mortgage and the car payment. But that's ok, we're going to borrow the money for those expenses and our discretionary spending will be unaffected."
I understand the situation in which we are in, and I think, having studied our economic history, that I understand why we are in the situation we're in. When I look at our economic cycles and political decisions over the last 30 years, I came to a conclusion, which I hope is not too simplistic.
When Reagan began his first term, the country was suffering from unemployment. The solution was deficit spending, and the genial Supply Side idea: cut marginal tax rates (i.e. the tax rates that are paid by the super rich) so that the super rich will work even harder... iada iada iada... trickle down economics. The result of such massive deficit? Economic growth that lasted until the early nineties.
What gives? The fact that we had a recovery without budget surpluses to cover the deficits that were justified during the recessionary years. The cause? Tax cuts for the rich.
When Clinton became president, he also experienced both recessionary and recovery years. By not cutting taxes for the rich, the budget turned positive.
Then Bush came to power and got hit by a recession, followed by 9/11. The response was to help the economy by cutting interest rates and cutting taxes, especially for the rich. This helped the economy come out of the recession but never allowed any budget surpluses to emerge. Partially because of the increased spending caused by 2 wars and the medicare expansion.
Perhaps Clinton got lucky and his recession really wasn't as severe to begin with as the other ones mentioned. But I do believe that the difference here comes from the Republican agenda of making the government borrow from foreign countries and transfer the money to its constituents--the super rich.
Do I agree with the 1.6 trillion deficit? Well, convince me that we can stimulate job growth in the near term without it, and I will say no. Until then, the answer is: regretfully, yes.
What I wonder is this: what will need to happen for us to experience a trillion dollar surplus?