BusinessWeek Online
Commentary: Cutting Through The Budget Smoke
Monday February 9, 8:08 am ET
More than ever, the budget process in Washington has become a massive shell game. Following the release of President George W. Bush's budget on Feb. 2, both Republicans and Democrats immediately launched into politically motivated spin, doing their best to distract the public from the real issues.
But look past the misleading rhetoric and deceptive numbers from both sides, and it's possible to see what's actually going on. Here's a short guide to the truths underlying the budget debate:
The deficit's size? Bigger than you think.
The deficit's impact? Less than you think.
But the figures presented in the very same report show that the economic effects of the budget deficit are well short of apocalyptic. Based on the report's own numbers, the drag on growth from $5 trillion in accumulated budget deficits would cut a bit more than 1 percentage point off of gross domestic product in 2014. That would reduce the 10-year growth rate by 0.1 percentage point -- barely a rounding error.
The importance of growth? More than you think.
Fixing the entitlements mess? More straightforward than you think.
The public debate over these programs, however, is incredibly muddled because politicians on both sides of the aisle -- intentionally or not -- repeatedly confuse two separate issues. The first is economic: As boomers retire, the ratio of dependents to workers will rise. Will this be manageable? It depends almost entirely on productivity growth. If there isn't enough growth, everyone -- retirees and workers -- will have to tighten their belts no matter which party is in power. But if the U.S. can maintain its recent productivity growth, the economy should have enough resources to afford the boomers' retirement and medical care without inflicting excessive taxes on workers. This is something entitlement opponents don't want to admit -- growth does make a big difference. Thus, the U.S. should do all it can to boost long-term growth, including increasing federal funding for nondefense research and development, which, outside of health care, is lower as a share of GDP than it was 10 years ago.
But there's another problem that entitlement supporters are equally reluctant to concede: Even if strong growth creates enough resources to pay for entitlements, Social Security has a flawed financing scheme that will inevitably generate deficits in the long run. True, faster growth increases wages and boosts the taxes collected by Social Security. But benefits, which are tied to the wages earned by workers, also go up. The financing system has to be changed either by privatizing the system, cutting benefits, or by augmenting revenues from the income tax. Each of these proposals has different winners and losers -- and that, in the end, is what the long-term budget fight is about.
Continue with:
Home Equity Loans Rates Online Refinancing Loan 125%
Mortgage Refinance - Lowest Mortgage Rates - |
