Now that Congress and President Obama have finished congratulating themselves on extending tax cuts, the harder work of deficit reduction must soon begin.
The agreement to prolong the Bush-era tax cuts for two more years, cut the payroll tax, and extend unemployment benefits was necessary to boost the sluggish economy. But it also adds about $900 billion in deficits at a moment when the federal government is awash in red ink.
It’s easy for elected officials to add to the national debt, which is about $13.8 trillion and climbing. The more difficult task is trying to balance the budget.
The debt commission appointed by Obama has made tough but grown-up recommendations for reducing deficits, through a combination of spending cuts and tax increases. While the weak economy needs more time to recover, Congress should begin work in 2011 to phase in at least some of these solutions.
If Congress doesn’t act soon, the government will run up annual deficits of more than $1 trillion for the next decade. The examples of Ireland, Greece, Great Britain and other European nations show that phased-in budget controls are better than rapidly imposed austerity measures.
One fat target of budget cutters should be the military. Defense spending in fiscal 2011 will top $700 billion, including the wars in Afghanistan and Iraq. It’s the biggest military budget since World War II, and about 23 percent larger than it was at the peak of the Cold War in the 1980s, adjusting for inflation.
The tax-cut question has been put to rest temporarily, but it will need to be raised again within two years. And the conclusion is that some taxes will likely need to go up. The size of the deficit rules out any solution that relies only on spending cuts to balance the federal budget. Increased revenue must be part of the equation.
The fairest course is to return to the proposal that Obama and Democrats were pushing earlier this year: raising taxes on the wealthiest wage earners. Hiking rates on taxpayers who earn more than $200,000 per year would trim deficits at the expense of those who gained the most from the past decade of tax cuts.
Other tax measures must be considered, such as eliminating deductions for a second home or writing off property-tax payments. Reducing the size of the federal workforce — which has exploded under Obama — is also needed. Such moves would be better than deep cuts to Social Security and Medicare.
An early test of these issues could come in February, when the new House Republican majority will debate a move to raise the nation’s debt ceiling to allow for more borrowing. Failure to do so would lead to a government shutdown and would suggest to investors that the United States couldn’t meet its obligations.
Tea-party Republicans are insisting on deep budget cuts as part of any deal. In this coming clash, Congress must be guided by protecting our most vulnerable citizens and sharing sacrifice fairly.