Eric Zorn and I face off on the exploding federal debt bubble

Another in a series of debates between Chicago Tribune columnists Dennis Byrne and Eric Zorn. Resolved: What should be cut from the federal budget to reduce the debt?

From Dennis, to Eric:

We've lived through the devastating bursts of the housing and dot.com bubbles. Now, welcome to the debt bubble burst, the wrenching end of our blissful federal borrowing.

Whoever is to blame for this financial debauch, which started with Ronald Reagan, the first of a line of presidents who borrowed our way to prosperity, the recent political and market convulsions should convince even the most flagrant borrower that we've reached the end of the line.

Raise taxes if you will, but it won't get to the heart of our problem: profligacy that requires Washington to borrow 40 cents for every dollar it spends. We can only hold our breath that the Joint Select Committee on Deficit Reduction, sired by last week's political turbulence, can come up with enough cost cutting to make a difference. Meanwhile, we can kick off the debate by agreeing that something consequential has to be done about spending.

I'll start.

Cut military spending by $1 trillion over the next decade.

Actually, that wasn't my idea. Give credit to Sen. Tom Coburn, R-Okla., someone who liberals imagine to be one of the bigger right-wing knuckle draggers. It's a highlight of his "Back in Black" proposal unveiled a couple of weeks ago to save more than $9 trillion over 10 years. Look at his detailed report (coburn.senate.gov/) and discover a multitude of reasonable cuts, running from major slices in expensive weapons systems to consolidating military health care and commissary functions.

The military has done fine work, but as a wartime veteran who never got closer than half a world away from the actual fighting, I highly doubt the military needs every cent it gets.

From Eric, to Dennis:

Defense cuts! Gee, to maintain the traditional left-right political balance of these exchanges of ours, I feel I should, in turn, call for eliminating funding for PBS, NPR and Planned Parenthood.

Coburn's 600-plus page plan does so. It argues that America should save $5.6 billion over 10 years by cutting off Big Bird and his broadcast brethren, and $417 million a year by eliminating federal support for teen-pregnancy prevention and family-planning programs.

I consider these tiny (combined they add up to less than 1 percent of a trillion dollars over 10 years) and likely foolish economies — distractions, at best, in the grand overall debate about the major reforms and cuts necessary to right the listing ship of state.

Still, Coburn offers up some sound ideas. He identifies numerous duplicative and dubious programs, indefensible tax loopholes and slaughter-worthy sacred cows as he inches his grand total up to $9 trillion.

His biggest bite is a $2.64 trillion reduction in Medicare and Medicaid spending over 10 years. And though I'm not persuaded that each of his suggested cuts and reforms are wise and sufficient, I am persuaded that we need to trim the growth in these programs and other entitlements, and that narrower eligibility standards and greater means-testing for benefits need to be on the table.

I'm also persuaded, as polls show most Americans are persuaded, that austerity-only is not the answer. A balanced approach to bringing those deficit numbers down requires increases in taxes, preferably on those most able to pay. Agreed?

From Dennis, to Eric:

I would agree if a "balanced approach" means tax reform, as recommended by President Barack Obama's own bipartisan deficit reduction commission, by Coburn and by Sen. Dick Durbin, D-Ill. That would eliminate tax exemptions, deductions, special breaks and other loopholes for everyone. In turn, tax rates for everyone would be lowered, but spread out more broadly.

This approach should appeal particularly to liberals, so that everyone would pay "their fair share." Big Oil, Big Business, the rich, the privileged. Outrage over GE and billionaires "paying no taxes" would end.

Tax rates could be set at a level to produce the same amount of revenues, which would mean that people who are unable to claim all those generous deductions would enjoy lower rates. Or rates could be set to increase revenues; hopefully they would be used for debt reduction instead of more spending.

The politics, of course, would be bloody. Homeowners no longer would get a break on mortgage interest. Denied tax-exempt status, charitable and nonprofit organizations would predict their demise. Green energy developments would have to succeed on their own merits. Lobbyists would come out of the Washington woodwork. There'd be plenty of room for compromise.

I suggested this approach months ago and was greeted with the threadbare accusations that I was just pimping for my big business masters. Obama didn't help matters when he ignored the recommendations of his own deficit reduction commission, falling back to repeating his mantra of a "balanced" approach and higher taxes. We can do better.

From Eric, to Dennis:

During the recent wheeling and dealing in Washington over the raising of the debt ceiling, Republicans said they were all in favor of the tax reform you describe as long as it was "revenue neutral," meaning that it simply split the same overall bill in a different way.

Democrats, no doubt pimping for their low-income and working-class masters, saw a trap — Why look Bunky! Under the new system, the rich are paying less! And they also argued that the country needs to collect more in taxes now to improve the economic outlook later.

Obama's bipartisan National Commission on Fiscal Responsibility and Reform (Bowles-Simpson) never approved its own draft recommendations, but the commission's co-chairs proposed tweaking the tax code to raise $100 billion in new revenue.

Sudden elimination of cherished deductions (home mortgage interest and charitable contributions, for instance), exemptions (value of employer-provided health care) and sweeteners (low tax rates for capital gains) would create turmoil that would go well beyond handicapping green-energy research.

But certainly we can phase in such ideas deftly, using thresholds, credits and other accounting strategies that would protect those most at risk. And just as certainly we can find in these various reports and proposals — there are many floating around out there, as you know — plenty of nonessential and ineffective spending to cut.

But can the congressional supercommittee? Do you have any hope that, in this political environment, lawmakers will agree to compromises sure to provoke the scorned, searing wrath of constituent groups, special interests and slogan besotted ideologues?

From Dennis, to Eric:

Hope? They had better. We've got no choice. The entire world is smothered in debt: The United States, its states and municipalities, Europe. And it's not because we didn't spend enough or raise taxes enough. It's simply because of insane levels of borrowing to support spending beyond our means. Essentially, we've been borrowing from each other, which is no way to grow an economy. It's as naive as expecting that we can become prosperous by taking in each other's laundry. We stand on the brink of a credit free-fall.

Standard & Poor's didn't downgrade America's credit rating because an amorphous movement called the tea party insisted that we finally do something about our crushing debt, tying every self-serving politician and interest group into knots. In fact, we should thank the tea party movement for bringing us to the water and forcing us to drink. It will be a long time before Americans again think that we can spend whatever we want because we can borrow whatever we need.

You're right that there's no shortage of reasonable solutions. We've been up to our ears in deficit reduction committees and commissions, grinding out many reasonable and serious prescriptions to avoid insolvency. Fighting over whose ox gets gored amounts to quibbling in the face of the depth of the crisis. Everything must face the knife.

It's a new reality. And politicians won't have the will to face it until voters do.

From Eric, to Dennis:

The timing of last week's downgrade was no coincidence. The news release from Standard & Poor's underscored that it was related to evidence "that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges." S&P noted "the political brinksmanship of recent months" had made the agency "pessimistic about the capacity of Congress and the (Obama) administration" to get our debt under control.

And who drove our nation to this illustrative brink by ginning up a phony crisis over the always-routine raising of an imaginary bar? Who inspired the GOP leaders to walk away from the $4 trillion-plus "grand bargain" deficit reduction deal that S&P and other ratings agencies wanted, just because that deal contained tax increases along with a far larger amount of spending cuts?

It was the uncompromising tea party zealots. They brought us to the water, yes, but then they held our heads under the surface until we agreed to their demands.

Now you're asking us to thank them for providing a helpful lesson in aquatic safety.

I agree tough choices lie ahead, but I don't agree that everything must face the knife. The safety nets that protect the most vulnerable should not, for instance, be slashed. And infrastructure improvement and other public jobs programs should get more funding, not less, when private sector hiring is in the doldrums.

This isn't quibbling. It's a debate about the priorities that will shape our country going forward — one in which all sides must compromise if we're going to chart a steady way forward.

I hope our readers will contribute to this discussion at your blog or at mine, where I've posted links to some of these detailed plans for those who want to get their policy geek on.

Visit chicagonow/byrne and chicagotribune.com/zorn

 

Copyright © 2011, Chicago Tribune

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    Like virtually all columnists, you take for granted that federal deficits should be reduced. How do you account for this fundamental equation in economics? Federal Deficits - Net Imports = Net Private Saving.

    It means that if you cut deficits, you cut saving, thereby cutting the economy. A growing economy requires a growing supply of money, and deficits are the government's method for adding money to the economy.

    What you are suggesting is like applying leeches to cure anemia.

    Those who do not understand Monetary Sovereignty ( http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/ ) do not understand economics.

    Rodger Malcolm Mitchell

  • I agree with Dennis that this country desperately needs to tax reform. Obama and many other politicians agree that in order to put America on the path toward real recovery and help stimulate job creation both parties must be willing to share the sacrifice necessary to successfully transform the tax code.

    Conservatives have made it clear that they want to cut spending so the first cuts they advocate for in the new bipartisan committee should be to remove special-interest tax breaks, which are basically government spending. (http://eng.am/pxo5XL) In return, Liberals on the committee should agree to lower the income tax rate, which studies have shown to increase tax compliance. Increased compliance leads to greater tax revenue and spurs economic growth. (http://eng.am/nz0KaJ)

    If Conservatives are willing to concede special-interest tax breaks and liberals are willing to lower the income tax rate then Congress can actually accomplish something that will improve the lives of Americans for years to come.

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