Where the deficit comes from

If you are serious about reducing the U.S. government’s debt, you need to start with the figures shown in this chart.

Click to enlarge

The largest factor in the debt is the Bush-era tax cuts.  If you thought the most important thing is to reduce the government’s debt, you would restore tax levels to the level in the 1990s.  This means middle-class taxes as well as taxes on the rich.  I’m willing to do my share, if the millionaires and billionaires do theirs.

The next largest factor in the debt is the economic downturn.  Government outlays for unemployment insurance and food stamps increase, while fewer people are earning wages and salaries to provide tax revenue.  If you thought the most important thing is to reduce the debt, you would make a plan to put Americans back to work.

The third largest factor in the debt is the wars in Iraq and Afghanistan, now mutating into wars in Afghanistan, Pakistan, Libya and maybe Yemen.  If you thought the most important thing is to reduce the debt, you would make a plan to wind those wars down.

You will see that the Center for Budget and Public Priorities does not include Social Security and Medicare in its chart.  That is because those programs are financed by their own revenue sources, and not by government borrowing.  In fact, because the trust funds for these programs are invested in government bonds, they reduce the amount of government debt “held by the public.”  Currently as Social Security and Medicare draw down their trust funds, as planned back in the 1980s, the trust funds’ Treasury bonds are cashed in and the government has to sell new bonds to the public.

At some point, as the Social Security and Medicare trust funds are drawn down, there will come a choice between reducing benefits or increasing taxes and premiums or taking from general funds without increasing taxes.  The latter would increase the deficit, but the Congressional Budget Office doesn’t project this problem to come to a head until after 2019.

It is too bad the CBPP did not produce a second chart, covering all government debt including the bonds held by government trust funds.  Treasury bonds are a fiduciary obligation of the government, whether they’re held by the Social Security trust fund or an Arab or Chinese banker.

Click on Off the Chart: What’s Driving the Projected Debt for an explanation of the chart by Chad Stone of the Center for Budget and Public Priorities.

Click on Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits for a more detailed explanation by Kathy Ruffing and James R. Horney of the CBPP.

Click on Statement on the Medicare Trustees 2011 Report for comment on Medicare solvency by Robert Greenstein, president of the CBPP.

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