What everyone should know about the debt "crisis"?

Mark Weisbrot Folha de Sao Paulo (Brazil), August 3, 2011 Nieman Watchdog, August 4, 2011 Since the U.S. “Debt Crisis” has been a big international story for the last few weeks, it is worth clarifying what is real and what is not. First, the U.S. government does not have a “debt crisis.” The U.S. government is paying net interest of just 1.4 percent of GDP on its public debt – this is not much by any historical or international comparison. The relatively large annual deficit at present (9.3 percent of GDP) is overwhelmingly the result of the recession and weak recovery. The long-term deficit projections are driven by health care costs in the private sector. These spill over into public spending because the U.S. government pays for almost half of health care spending, at a rate that is twice as high as other developed countries – and rising fast. There was never any chance that the U.S. would actually default on its debt. The whole “crisis” was manufactured from the beginning, with Republicans in the House of Representatives using a technicality to win unpopular spending cuts that they could not win at the ballot box. It worked: They got an agreement that promises large spending cuts without any tax increases on America’s rich or super-rich, who have vastly increased their share of the national income over the past three decades. The right won because President Obama chose to collaborate with them, also seeking to take advantage of the manufactured “crisis” to implement cuts that offended and hurt the people who voted for him. Of course he also wanted to increase taxes on the rich, but because he had accepted the legitimacy of the Republicans’ extortion, he lost that too.

The Federal Deficit Crisis

	Fact Sheet Questions and Answers on the Federal Budget

Q: Why do we now have such a large federal budget deficit?

A:    1. Ten years of the Bush tax cuts enacted in 2001 and 2003 have accumulatively cost $2.5 trillion dollars in federal revenues.  The tax cuts primarily benefited wealthy individuals and corporations, turned the modest budget surpluses under the Clinton administration into growing deficits, but failed to promote economic growth. Tax revenues remain depressed as even fewer workers are employed at decent wages following the onset of the Great Recession.

2. The costs of the lengthy wars in Afghanistan and Iraq are being paid for by borrowed money rather than taxes.   See also; http://www.commondreams.org/view/2011/07/12-3 by James Gailbraith. 

3. When the great recession broke out following the financial collapse caused by reckless speculation on the housing derivative markets, the federal government borrowed more money to bail out banks and other financial institutions.  The Obama Administration also administered a modest but costly economic stimulus program that alleviated the worst consequences of the crisis, especially for state and local governments and for the unemployed.  However that stimulus funding has lapsed, threatening millions of vital jobs in education and other public services at the state and local levels.

Q: What is really at stake in the Budget Debate in DC?

A: A manufactured crisis over raising the debt ceiling is being used by Republicans and conservative Democrats to attack Social Security and Medicare, which are highly popular, cost efficient and vitally needed government “entitlement” programs. Our values as a nation are expressed in the national budget, in how we raise our national revenues and prioritize our spending. 

Q: What are Republicans Up To in DC?

A:  Republicans are holding the country hostage by refusing to raise the debt ceiling; they will only do so if the federal government caps domestic spending at a fixed percentage of GDP and passes a balanced budget amendment. Both of these policies would have disastrous long-term results for the U.S. economy.  The Republicans also refuse to raise taxes, even by permitting the last set of “temporary” Bush-era tax cuts to lapse.  Their real aim is to hamstring government from having any positive role in society.

The Republicans’ concern for the “deficit crisis” is hypocritical. Conservative policies of tax cuts for the rich and deficit-financed military expenditure are the real causes of our deficit problem, not excessive government spending on health, education, and child care. Nearly half of the total $14.2 trillion total debt owed by the United States government derive from loss in government revenue due to the Reagan and Bush tax cuts for the wealthy and corporations and by their administration’s huge increases in military spending.