How Do You Solve a Deficit?

How Do You Solve a Deficit?

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It feels a little deja vu to hear that the government is shutting down. This time, it wasn’t due to the gridlock on immigration, but rather the result of the action of one man: Senator Rand Paul. Senator Paul delayed voting on the recently agreed upon bipartisan spending package, in protest of the removal of budget caps on both domestic and defense spending. Senator Paul has expressed particular concern about the deficit increase resulting from this proposal: the deficit would increase by at least $300 billion with no major spending cuts. However, despite his objections, the bill ultimately made it through Congress. Considering that is on top of a preexisting $666 million deficit, it’s hard not to sympathize with Senator Paul’s perspective.

Of course, it’s important to understand why it’s not a good thing to constantly run a deficit. Higher deficits often have a "crowding out" effect  on private investment. The money supply is finite and if the government is borrowing more of the available loanable funds, there is less to loan to private companies. Increased deficits also grow our national debt, which is projected to exceed 100% of GDP by 2039. While some debt is able to be dealt with, a debt exceeding a nation’s GDP is extremely detrimental to the economy. For these reasons, continual increases in the deficit should not be accepted. Ideally, we would want to reduce the deficit.

Deficit reduction is accepted as important by leaders on both sides, but the tricky part is figuring out what to cut in order to reduce the deficit. Even Republicans have new spending priorities and increased funding for current programs. This is the party that is generally portrays itself as wise stewards of our economic health. Meanwhile, the Democrats do not proclaim such goals and proudly advocate for increased spending on programs like single-payer healthcare and are reluctant to even consider cuts. Due to the desire on both sides’ parts to overall increase spending, budget deals tend to grow the deficit as the goal of compromise tends to be ensuring both sides get funding for their key spending priorities.

In the face of this problem, it can be hard to see solutions. One first step would be searching the budget for wasteful spending. Examples of this aren’t hard to find, even in areas that are considered crucial. For instance, the Pentagon lost track of $800 million that was intended to be used for construction programs. Meanwhile, improper payouts in welfare programs in 2014 alone nearly reached $125 billion. Clearly, despite the popularity of these areas of spending, there is plenty of waste present to cut. Despite virtually all politicians promising to eliminate waste, fraud and abuse, the wasteful spending still occurs.

Another potential option would be to advocate for across-the-board spending cuts. There are a couple of forms this could take. One way is through sequestration, which places spending caps on all areas of spending. This was the route taken in 2013 to deal with the debt ceiling crisis. Both sides had their preferred areas of spending, subject to caps. However, this route to reducing the deficit ultimately failed. That is because the caps were unpopular with both sides’ political leaders, as they prevented increases in spending on the issues they wanted to spend more on. There are other forms of spending reductions that can be pursued-for instance, Senator Paul proposed 1% across-the-board spending cuts.

However, Congress has largely failed to implement these solutions. Instead, most Congressional leaders prefer to ignore the problem. There are several factors, but the primary one is that leadership from both sides benefit from being able to tout funding increases for their preferred programs. Regardless, few politicians have the courage to stand with Rand and oppose these sort of continual spending increases. Unless more brave fighters for fiscal responsibility are elected, the problem we face with our deficits will not be addressed.

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