By Anson Burlingame
Special to The Globe
JOPLIN, Mo. —
The American electorate has spoken and progressives have sustained power in the White House and Senate. The House remains firmly in GOP hands. In terms of congressional and White House reins of power, nothing has changed as a result. But much needs to be done now.
We still have a fiscal cliff looming over our heads and huge economic problems if we avoid that cliff. The term “structural deficits” is one seldom heard in political sound bite discussions of economic matters. However, it is an important matter to understand.
Our total deficit can be described in two parts, the cyclical deficit and the structural deficit, that when added together are equal to the total deficit. As the economy rises or ebbs, strong growth or recession in our gross domestic product and all points in between, government deficit spending rises or ebbs as a result.
If unemployment goes up, fewer people are working and thus less income tax revenue is collected and more spending is required for unemployment insurance, just as a cyclic example. No new laws or acts of Congress are required to cause a drop in revenues and rise in spending on a cyclic basis because of the cyclic nature of our economy. Such drop in revenue and rise in spending is driven simply by the “business cycle” in the economy and thus is viewed as a cyclic deficit, spending more than is collected in revenue during “bad times.”
On the other hand, current laws enacted to regulate government spending by Congress may cause a structural deficit, government spending in excess of revenues that are not dependent on growth or recession in GDP. Consider it a “constant deficit” in that spending will always be greater than revenues unless revenues are increased or spending reduced, or both take place at the same time, through legislation.
My point is simple, given the above considerations. In 2011 our total deficit was about $1.3 trillion and the Government Accounting Office estimated that the structural portion of that deficit was close to $1 trillion. In other words, absent congressional action, we are stuck with a huge structural deficit that growth in GDP alone will never correct. Instead, Congress and President Obama must have the political courage to force our federal government to live within its means by raising taxes by a huge amount, cutting spending by a huge amount or doing both to varying degrees.
One very simple example is Medicare as we know it today. That single program causes a federal deficit of about $250 billion in one year and that deficit is going up annually because of the cost of health care, not changes in legislation. The only way to even reduce, much less eliminate, that single component of our much larger total deficit is to change current laws regulating how we spend Medicare dollars or receive revenues for that program.
I challenge anyone to balance the Medicare budget legislatively today. Raise revenues for Medicare, cut spending for the program or do both and do it in a way that the rising cost of health care does not unbalance that single line item budget in the coming years.
Such an attempt will create a political firestorm for sure. But firestorm or not, such legislation must be enacted by our federal government. That will fix Medicare, but it will certainly not be Medicare as we know it today.
And that is only one small step to take to address the much larger issue confronting us — bringing our total deficit down to eliminate our structural deficit. But if we do that then we only have to address our cyclic deficits that will depend on the ebb and flow of GDP growth in the future. Said another way, we need structural legislative reform to eliminate our structural deficit on an annual basis.
Try to get any politician to explain how his or her program will achieve such a worthy goal, living within our means on a long-term basis.
Anson Burlingame lives in Joplin.