The Balanced Budget Dilemma

Conservative Republicans and liberal Democrats alike have limited the 2011 budget deficit debate to two variable, costs and taxes. The third variable, borrowing, they have conveniently ignored. In mathematical terms, the full equation is this: Government Spending = Existing Tax Revenues x Borrowing. So, if American politicos want to preserve their constituents entitlement and pet discretionary programs, while, at the same time, cutting taxes, they would have to make up for the lost tax revenue by borrowing money, thereby adding to the national debt and, in effect, kicking the problem down the road for future generations to deal with it.

This was exactly how the short-lived economic spurts during the Reagan and Bush Son administrations were engineered in the 1980’s and 2000’s. Myth has it that because taxes were cut across the board business were able to expand, earn more revenue, hire more workers, and, as a result, the tax cuts were amply offset by business and consumers paying more in total taxes though at a lower rate. A win-win all around. But what really spurred those economic spurts was borrowing. During the Reagan, the national debt tripled, and under Bush Son it doubled. “Voodoo Economics,” that’s what Bush Father aptly called “Reaganomics” when campaigning against Reagan in the 1980 Presidential primary. He knew that even if businesses took advantage of lower taxes to increase production, which business are not necessarily inclined to do, it would take years, even decades, for profits to kick in. The “Reaganomics” quick fix was really a massive borrowing spree.

But back to the 2011 deficit debate. Clearly, if Republican conservatives and liberal Democrats want to preserve their constituents pet programs without increasing the national debt, they will have to raise taxes. And if they choose to cut taxes without raising the debt, then the only solution is to decimate their pet programs, and run the risk of triggering a revolt and getting voted out of office. Given the fact that the American economy is not growing to a significant degree, if at all, that little or no new wealth is forthcoming from other sources any time soon, those are the only options. Not a good time these days to be an elected official in America.

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