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Kleppner: Deficit Debate

07/26/11 7:55AM By Bram Kleppner
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(HOST) The acrimonious negotiations in Washington over the debt ceiling have caused commentator Bram Kleppner to look a little more deeply into the sources of the federal deficit. He was surprised by what he found.

(KLEPPNER) I help some small Vermont businesses manage their budgets, so I thought that behind all the complexities of the federal deficit, there would be a pretty simple solution: cut spending, raise taxes, or both.

According to the Office of Management and Budget, balancing the budget with spending cuts alone would mean completely eliminating federal spending on transportation, education, scientific and medical research, and foreign aid, and cutting spending by 25% on Medicare, Medicaid, the Children’s Health Insurance Program, Social Security, the safety net programs, veterans benefits and defense. Ouch.

On the other hand, balancing the budget by raising taxes alone would take an across-the-board 50% tax hike. Ouch again.

It seems we really do need both tax increases and spending cuts.

I think federal spending can be divided into two categories. First is investment in America’s future, which includes spending on transportation, education, scientific and medical research, foreign aid and defense. The other category of federal spending is aid for those in need, including Medicare, Medicaid, the Children’s Health Insurance Program, Social Security, the safety net programs and veteran’s benefits.

In that light, our three choices are one, cut investment in our future; two, give a pay cut to those least able to afford it by cutting social programs; and/or three, give a pay cut to taxpayers by raising taxes. These options are not equal – some will cause much more suffering than others. Raising the eligibility age for Social Security, for example, will cause less pain than cutting unemployment and Medicaid benefits; and raising taxes on the rich will cause less pain than either.

But here’s the surprise: even in the unlikely event that our politicians find the courage to cut spending and raise taxes enough to balance the budget, and even if they do it in the least painful way possible, we’ll still have a problem, because health care costs in big parts of the federal budget are growing so fast that we’d quickly find ourselves in deficit again without additional tax increases and/or spending cuts.

Three of the five biggest pieces of the federal budget are one, Medicare, Medicaid and the Children’s Health Insurance Program; two, defense; and three, benefits for veterans and federal retirees. Together, these three areas represent 48% of the federal budget. The Congressional Budget Office forecasts that Medicare will drive over 30% of the growth in the federal budget over the next 10 years. The Department of Defense will spend $50 billion this year on healthcare, an expense that is growing at five to seven percent a year. The Veterans Administration will spend an additional $48 billion on veterans’ health this year, up 12% from last year.

If we really want to deal with the deficit, we have to deal with health care. In this light, Obamacare is too little and will take effect too slowly, and Vermont’s move toward single-payer healthcare may be as important for the rest of the country as it is for Vermont.
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