Justice, Deficits, and Taxes

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Can there be a coherent Christian perspective on the massive, interrelated issues of US deficit reduction and tax reform?

Bracketing off questions related to whether our government leaders can ever actually accomplish what I am about to propose, I offer two simple principles that might constitute the outline of a coherent Christian perspective on the fiscal problems we now face as a nation.

1. The American people must learn to pay on time and in full for the services we wish to purchase from our government.

 I am moving briskly away from an expansive, compassion-based vision of what government can perhaps accomplish for God’s reign toward a more modest Lockean and contractarian vision. This move has many sources: a sharper sense of the contrast in responsibilities between the state and other sectors, greater realism about the limits of what government can accomplish in “fixing the world,” awareness that in the real world every expansion of government spending creates a permanent, expensive constituency of government servants and clients, and a growing sense that Christians have too often offered biblically driven but constitutionally and theoretically illiterate policy prescriptions.

 So let’s try a thought-experiment. Consider thinking of federal budget making as the process by which a diverse citizenry chooses to tax itself for a very particular set of services to be provided by the national government. The central issue for political debate in each session of Congress, then, would concern how much of which types of services we wish to purchase. Given unlimited possibilities for services, together with limited resources, this debate will always be fierce.

 What should not be a matter of debate is the principle that whatever services we choose to purchase should be paid for on time and in full. There can be emergency circumstances that might dictate borrowing. But emergency conditions have become the rule rather than the exception.

 The principle of paying today for the services we buy today is a matter of basic moral responsibility, especially to the next generation, but also to this one. A government budget choked with debt (6% of federal spending is simply loan payments) forces wasteful spending on interest both now and in the future, and blocks us from buying more valuable services, including social services.

 2. Given government spending of nearly $5 trillion annually, and the $1.3 trillion gap between federal budget spending and revenues, the American people must in principle first cut spending, then raise taxes, then hold both steady.

 Cutting spending is a rather bland way of saying something that should be said much more sharply: we must accept that most Americans are unwilling to pay for the full range of federal government services that we have been buying. Therefore we must buy fewer and less costly services. Logically, this requires starting at the budget items that cost the most and then working from there. Coming to grips with a smaller government means facing hard choices and losing benefits we have enjoyed:

 a)      We must choose whether we want to spend $700 billion (20% of the budget) to continue to buy the largest and most expensive military in the world, with a commensurately expansive global role in projecting American power. We must wean ourselves off of this role.

b)      We must choose whether we want to continue to buy federally provided retirement (20%) and health benefits (21%) for an aging and sickening population. I believe we must now rethink and shrink that federal role, especially by means-testing benefits, but in other ways too.

c)       We must review our spending on the 14% of the budget that provides a safety net for the poor, with the bias toward finding more efficient ways to meet the same needs;

d)      We must choose whether we want to continue to buy the vast range of products and services that we buy with the remaining 20% of the federal budget, and constantly look for ways to trim spending.

e)      Every budget manager in every federal department must be required to trim operational expenses by 5% every two years to establish a mindset of frugality and move the budget toward balance.

f)       Having cut first, we must then be willing to pay the taxes for the services that together we conclude are indispensable. These taxes should be progressive but not confiscatory and cannot be loaded onto the backs of any one portion of the population.

 Whether we accomplish such reforms depends on our will as a people, and our ability to overcome narrow interests and political gamesmanship to do what is right for America. Christians ought to know something about how to rise above self-interest for the sake of others.

 This essay was originally printed as a “Capital Commentary” for the Center for Public Justice.

 

 

 

 

 

 

How we Reduce the Deficit is a Moral Issue

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“You don’t know what you have here in America, you know?” said the cabby who drove me home from the airport. When his father died in Ethiopia, he had to drop out of his American university where he was studying computer engineering to start driving cabs to support his family back in Ethiopia. Ethiopia has no social safety net.

“In America,” said my cab driver, “you have services and programs that help keep families together in hard times.” He hasn’t seen his family in nine years. His cab-drivers’ salary is hardly enough to pay for a plane ticket to Ethiopia. Besides, if he takes time off, that would be less food, education, and possible eviction for his mother, brothers and sisters.

While it is true that America has a social safety net, it is weaker than it was just forty years ago and it’s come under more intense attack in recent years. The deficit is the justification for shredding the net now. And extremists are pushing the party that claims a lock on “family values” to nullify the programs that protect at-risk American families from slipping into poverty.

In the name of “fiscal responsibility,” the Tea-Party led House GOP passed H.R. 1956, a bill that takes cash from the hands of America’s poorest working families in order to protect the richest of the rich. HB 1956 requires workers to present a Social Security Number rather than an IRS issued Individual Tax Identification Number to claim the child tax credit. Seems simple enough, but the bill is crafted to target working immigrant families the hardest, even if they are legal residents or have children that are American citizens. The GOP called this a compromise. H.R. 1956 is what they offered in return for the extension of the Payroll Tax cut. Congress could have paid for that extension by ending the Bush era tax cuts for the wealthiest Americans, which were set to expire on January 1, 2012. But the GOP said absolutely not. Instead, they crafted H.R. 1956.

Think about that. The House GOP took cash from the hands of poor children to prioritize tax cuts for the wealthiest Americans.  And now the bill is being considered by the Senate.

According to the non-partisan Center on Budget and Policy Priorities Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years. When we add the residual costs of the Iraq and Afghanistan wars, together these two expenses will account for half of the entire U.S. Public Debt (measured as a share of the economy). Check out this graphic.

In a recent emailed statement Ellen Nissenbaum, senior vice president of government affairs for the Center on Budget and Policy Priorities, stated: “In both a legislative and political context, the threats are growing to the core safety net programs that are the most essential to reducing poverty and helping vulnerable families.” Nissenbaum added, “Attacks on SNAP, the refundable tax credits for working families, Medicaid and even on Unemployment Insurance, which obviously is not limited to low-income workers, are growing in the campaign airwaves.” Roadside campaign rhetoric cultivates the climate for post campaign policy-making. If this rhetoric was actual policy at the time of the economic downturn, then millions more people would have fallen into poverty without a safety net in 2010.

We know how to balance the deficit without threatening the lives and livelihoods of poor people and without making middle class and working people more vulnerable to poverty in hard times.

  1. If we ended the Bush-era tax cuts we would cut the long-term deficit by one third over the next seven years.
  2. One of the greatest contributors to the deficit is escalating health care costs and their drain on programs like Medicare and Medicaid. The solution is not to cut aid to hurting people. It is to cut costs. The chief recommendation of the nonpartisan Congressional Budget Office in a 2010 report was the addition of a “Public Plan” to Insurance Exchanges to drive down the cost of health care.
  3. Protection of programs like SNAP/Food Stamps not only protected 2% of the population from falling into poverty in 2010, this program and other safety net programs like it serve as great boosts to depressed economies. Money flows directly from the hands of recipients and into local super markets, farmers’ markets, and convenience stores.
  4. Continue the present administration’s moves to make the military more efficient, nimble, and cost effective.

Budgets are moral documents and how we reduce the deficit is a moral issue.

Nowhere in scripture do we see an example of God instituting or approving policies that snatch money from the hands of poor people to protect the wealthiest individuals and businesses—nowhere. Rather, we see God’s establishment of the Sabbath, the Sabbatical Year, and the Year of Jubilee. All three policies protected the poor and workers and limited the level of wealth that could be amassed by any one individual, family, business, or even by the nation of Israel itself within a generation.

I am not advocating that America becomes a theocracy or adopts these policies verbatim. We are a democratic republic, by and for the people, not a theocracy. What I argue is that these three fiscal public policies offer a window into God’s priorities. In God’s economy people are more important than profit. Under God’s governance food is never ever ripped from the mouths of hungry children in order to line the pockets of the rich. Never.

Moral Principles and Moral Courage

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As I have followed the national budget debate over the past twelve months or so, I have been struck by the ways that the arguments are framed morally.  Today, it has become commonplace to declare that the budget is a “moral” document, that as a statement of the nation’s economic priorities, it makes decisions that are moral by their very nature, both in themselves and in their consequences.  

This declaration is, of course, absolutely true: it is hard to see how anyone might imagine the federal budget to be merely “economic.”  In fact, it is so true that the reminder is almost unhelpful, for once we attune ourselves to the moral questions at stake, we see that in fact that participants are making moral claims all the time concerning budget priorities.  The question then is not whether moral principles, but which moral principles.

I see at least two great sets of moral claims at play.  One set is based upon economic stewardship.  The United States today is living beyond its means, and in fact, has been doing so for some time.  While extending costs over time may be appropriate and even advisable when benefits likewise extend over time, passing costs to future generations for benefits enjoyed only today goes against any stable norm of stewardship.  And when certain national priorities threaten to grow beyond the government’s ability to sustain them—I have in mind entitlement programs—stewardship demands that we consider how we might pursue these priorities responsibly.

A second set of moral arguments emphasizes justice.  While we have an obligation to consider our stewardship responsibilities for the sake of future generations, it is equally important to carry out our responsibilities to our neighbors today.  So if justice requires that all members of society have the ability to participate in our common life, the cost of efforts to reduce deficits may not be borne by the most vulnerable members of society.  Programs designed to meet these goals may need to be rebuilt from time to time, but the foundational requirements of justice with regard to the poor do not change.

I find it helpful to consider the moral framing of the debate in this way because, first of all, it encourages us to consider our motivations in the debate—and equally important, the motivations of others.  Often, opponents in the political budget fight are caricatured as uncaring and selfish (on the one side) or stupid and selfish (on the other).  Recognizing that our opponents’ positions may be morally grounded is valuable, even if we reject the policy prescriptions that flow from them.  It may not be necessary to find that our opponents are uncaring, stupid or selfish; it could be that they are merely wrong.

But does the recognition of the varied moral positions at stake issue help us as we stumble towards policy?  I think it may, for although we may arrive at these moral principles from different religious or ideological starting places, they enable a place from which alternate political conversations may become possible.  We may discover, uncomfortably perhaps, that our moral principles cut both ways in terms of policy.  The moral principle of stewardship, for example, applies not only to our finances.   Surely, a wise steward will not pay for yesterday’s fiscal deficits by passing social or environmental deficits to tomorrow.  It’s hard for me to see how tax increases on the most wealthy can or should be avoided in pursuit of these ends.

The moral claims of justice also cut both ways.  While justice requires bringing to the most vulnerable the care to which they are entitled, justice is also implicated in our  obligations to future generations, and that will require us to take a hard look at unsustainable spending patterns in particular areas. This will include military spending.  But the far more significant challenge, and the more difficult, will be the rebuilding of entitlement programs.  And for that reconstruction project, justice itself will require that all options remain on the table. 

What becomes clear, I believe, is that neither justice nor stewardship can be considered alone, and they certainly need not be opposed to each other.  Fortunately, the interplay of these two principles may result in more policy options than we perhaps had expected.  These are moral decisions, these are difficult decisions, but they remain decisions. 

And here we arrive at what is perhaps most challenging.  To make moral decisions, we must be morally courageous.  And in politics, that requires refusing easy answers (“tax the rich!”; “cuts across the board!”) and a willingness to assume some of the costs that come with being morally principled.  Both of the tempting options of  “more of the same” and “less of the same” must be rejected.  Now is the time for public policy makers to be as courageous as they are principled.

The Federal Budget Deficit

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The national policy making process is often described as dysfunctional and in disarray.  One can question this conclusion in regard to some policy-making areas; it is hard to deny in regard to the mounting national debt. 

Our national debt has increased by leaps and bounds under both Republicans and Democrats.  When George W. Bush took office it stood at $5.7 trillion; when he left office and Barack Obama took office it was at $10.6 trillion; today it is over $15 trillion.    

Several efforts to reach a bipartisan solution have failed for lack of support.  Meanwhile, President Obama and many Democrats largely focus on raising taxes on the very wealthy as an answer; most of the Republican presidential candidates and many congressional Republicans largely focus on cutting government programs and passing a balanced budget amendment to the Constitution as an answer.  No one seems willing to make the tough choices that are needed.

As one who is committed to a biblical view of society and government, I here note two basic facts and then suggest two directions I believe an appropriate response ought to take. 

Fact number one: If the present mix of revenue policies and spending patterns continues, federal government deficits will continue to increase and the national debt will continue to balloon, leading in the future to a major fiscal crisis.  The poor and near-poor especially will be hurt, and government will have failed in its God-given task of promoting a just order and the common good. 

Fact number two:  The key cause of our current and projected deficits lies in increasing social security payouts and especially in the increasing health care costs of the Medicare and Medicaid programs. Any proposal that claims to deal with the long-term debt issue, but does not deal with these three programs, is not dealing with the underlying problem.  Talk of taxing the rich, passing a balanced budget amendment, and getting rid of waste may play well on the campaign trail, but do not deal with the problem.

What then are the directions in which genuine solutions ought to move?  I believe there are two.

Direction number one: Tax revenues need to be increased.  This could be done simply by going back to the tax rates in place during the prosperous Clinton years of the 1990s.  But a better course is to remove many of the current tax deductions, exemptions, and write-offs now found in an overly complex tax code.  Simplifying the tax code could raise the needed revenues while actually lowering some tax rates.  But in an imperfect world—with powerful special interest groups and their armies of lobbyists—changing the tax code runs the risk of introducing new inequities even as old ones are removed.  In the real political world it may be safer simply to let the Bush tax cuts of 2001 expire in early 2013, thereby going back to the tax levels in place in the 1990s.

Whatever is done, tax deductions for charitable contributions, dependent children, and interest paid on home mortgages should remain in place.  Civil society is a crucial part of a free, democratic society and is an aspect of God’s ordering of society.  The tax deduction for charitable contributions is one way public policy encourages and strengthens civil society institutions without direct government intervention or support.  Similarly, the tax deduction for children is an important way public policy encourages and supports stable families and recognizes their essential place in civil society.  The tax deduction for interest paid on home mortgages is less clearly supported by Christian principles, but it indirectly supports families and makes possible their raising children in the stable environment that home ownership encourages.

Direction number two:  Cuts must be made in social security and especially in Medicare and Medicaid.  The challenge is to do so without denying genuinely needed services to many, that is, without violating the common good.

The changes in social security could include making some of the payments means tested for future retirees.  But it is in Medicare (the government-run program of insurance for the elderly) and in Medicaid (the state-run and federal-government-subsidized program of medical care for the poor) where the biggest challenges lie and where the biggest reductions in projected increases in costs are needed.  The answer is not to cap the money spent on Medicaid by the federal government as some have suggested, which merely pushes off onto the states the challenge of providing health care for the poor.  Inevitably, the medical care one receives would be more closely linked to one’s income, which runs counter to the just order God calls government to promote.  Many middle class elderly persons who need long-term nursing home care and have exhausted their financial resources would be hurt.  (This group is one of the largest contributors to increasing Medicaid costs.)  Nor do I believe turning Medicare into a private insurance plan, with the federal government subsidizing the insurance premiums, is an answer.

Instead, I believe we need to reduce the increasing costs of these programs, first, by moving more fully towards managed care systems.  These could be full-fledged HMOs, Preferred Physician Organizations (PPOs), or some lesser forms of managed care, with primary care physicians serving as the gateway to more specialized, intensive care. 

Also, some cities and areas have per person medical costs that are one-half or even less than those of other areas.  The reason is not that persons in some areas are healthier than those in other areas or that they receive better medical care. Instead, the reason is that medical practices (such as the number and types of tests ordered and how quickly surgery is resorted to) vary greatly.  Public policy should encourage high-cost areas to adopt more conservative medical practices. 

What I offer here are hardly full-blown answers to the challenge of our mounting federal government debt; I do believe what I offer here points us in some important directions that will move us—in keeping with key Christian perspectives—towards those answers 

                                                                                                            Stephen V. Monsma

Apocalypse Soon? Finding Solutions to our Deficit Problem

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“With the financial future of the nation at risk, you would think federal policymakers would take strong action to prevent the apocalypse,” wrote Ron Haskins of the Brookings Institution.  Leonard Burman of the Urban Institute warned of the “potentially disastrous economic consequences” of what he called a “catastrophic budget failure,” even as Jeffrey Miron of the Cato Institute cautioned that “something must change, and soon. Otherwise, nothing will stop the U.S. fiscal train wreck.”  When policy experts from think tanks across the ideological spectrum seem near consensus in forecasting such gloom and doom, we should all take notice. 

Sound fiscal policy needs to start with the principles of wise stewardship and shared sacrifice. We must seek justice and give special concern for society’s most vulnerable members. (For a more detailed discussion of important principles, see the Call for Intergenerational Justice.) Government programs and services benefit us all and help secure the common good, and we all have an interest in maintaining a stable and well-functioning system.  Given the current budget realities, however, we all will need to make sacrifices to ensure future stability. Continued deficit spending burdens our children and grandchildren and threatens their future.  Economic problems in the United States reverberate across the globe. We must find the political will to address the debt crisis with meaningful and substantive reform.

Can we adequately reduce the current federal budget deficit by only enacting cuts in federal expenditures?  No. Can we do so solely by enacting tax reform? No. The only way to address our current budget deficit problem is to rein in spending, revisit the tax code with the understanding that we likely need to increase some taxes, end many tax breaks and fundamentally reform existing entitlement programs.  Everything has to be on the negotiating table.

Our current budget woes were decades in the making, and it will take some time to reverse course.  Democrats and Republicans alike have contributed to the financial problems, and leaders in both parties need to come together and implement a fiscally responsible plan for curbing deficit spending and securing our nation’s financial future.

Sound policy approaches to the deficit problem must include a combination of long-term and short-term solutions.  Because the short term economic circumstances remain rather grim, we likely need to phase in reforms over a period of years, perhaps accepting some deficit spending in the short term until the economy can better support more drastic measures.  At the same time, we must consider the long term ramifications of current policy choices.

So what combination of policy proposals might help us chart a path forward? 

Tax policy: Perhaps the best way to raise revenues is to broaden the tax base, a goal that can be achieved with comprehensive tax reform that limits deductions and tightens or eliminates loopholes. In the interest of justice, we must maintain a progressive tax system that asks those who benefit the most to contribute the most.

Spending reductions:  We also need to curb government spending. Federal spending (measured in constant dollars) has increased almost every year since 1970; such a pattern needs to end. We can and should debate the exact ways of reversing the trend, but it is possible. Consider a few examples. One proposal suggests we can save an estimated $100 billion over the next decade by reducing agricultural subsidies. Government grants should include accountability measures to ensure we fund programs that meet their goals and cut programs that don’t.

Entitlement Reform:  Social Security and Medicare are essential safety net programs. But we must curb the rising projected costs. Entitlement spending in coming decades will skyrocket due to the increasing costs of health care and the aging of the population that adds many more beneficiaries to the Medicare and Social Security rolls. Reinventing the Medicare program for future beneficiaries so that it provides premium support for a range of health plans is one promising idea.  Relying on panels of medical experts to set coverage policies based on the latest research is likely another piece.  At the same time, we have to confront the changing demographics of our aging population and longer life spans by gradually increasing the age of eligibility for Social Security and Medicare.

In our current political climate of stalemate and blame casting, leaders in both parties have failed to reach compromise agreements necessary to move us away from deficit spending.  In order for any meaningful policy change to occur, the president and congressional leaders will need to demonstrate great courage and be willing to take great political risks. As we saw last November, a bipartisan congressional committee could not reach a budget deal even with the strong incentive of avoiding more than a trillion dollars of automatic spending cuts.

Budget politics are complex, and global factors affect the economy in ways we cannot predict.  But we can all agree that deficits of more than a trillion dollars a year, our rapidly escalating national debt, and the exponential growth of entitlement spending create a fiscally unsustainable future.  Instead of waiting for financial apocalypse and blaming political opponents for the disaster, we should demand that our elected officials cross party lines, gather together to forge workable compromises, make difficult choices that secure the long-term good, and exercise true political leadership. In turn, we should reward their political courage in the voting booth.

“Jump” into Deficit Reduction.

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“What’s the sense of having a Republican administration and a Republican Senate if the best we can do is a $200 billion deficit?”

– Republican Senator Bill Armstrong, 1984

1984: the year of my birth, the Macintosh computer, Reagan’s 49-state reelection, and the classic rock anthem “Jump.” Twenty-eight years later, I’m a married man, Republican presidential candidates vie for Reagan’s mantle, and Van Halen has given way to Lady Gaga. And while the latest iPhone is 371% smaller than the original Mac and costs 1254% less, our nation’s deficit has ballooned 659%. Sen. Armstrong’s $200 billion frustration has metastasized to a $1.3 trillion threat.

As yearly deficits become soaring debt, interest payments become a larger portion of government spending. In 2011, taxpayers spent over $454 billion on interest towards the national debt. According to the Washington Post, in 2014 interest payments will surpass what America spends on education, transportation, and energy combined with all other discretionary spending. Deficits and debt can also have dire implications for the economy, including increased interest rates and lack of credit. 

We face a big, complicated problem. Resolving the deficit crisis will mean addressing the tax system, agriculture subsidies, federal pay, defense spending, and more. Yet it’s clear that the most critical issue is entitlement spending.

The rising costs of America’s two largest spending programs, Medicare and Social Security, over the next 25 years will greatly expand the deficit and debt. Spending on these programs is projected to rise 5% in this time at a cost of an additional $750 billion annually. The costs of these entitlements continue to rise, reaching 18% of GDP by 2050. Alone, they account for 90% of the growth in government spending.

The unsustainable growth of entitlement spending is a bipartisan failure. Lawmakers from both parties have failed to address the foreseeable problems because voters have made reform the “third rail” of American politics.

Now is the time to advocate reforms that provide health insurance coverage for seniors and the poor and maintain an income safety net for retirees and the disabled without compromising America’s fiscal future. There’s plenty of debate among policy researchers about what specific combination of reforms will be most effective, but generally we are talking about altering the incentives driving consumer choices.

This means confronting complex questions. For example, a significant portion of Medicare spending occurs during the last year of life. About a quarter of the total budget is spent in that year, 40% of that in the last 30 days of life. In 1997, Medicare paid $26,000 per person in the last year of life, about six times the cost of other beneficiaries.

We can afford to ensure that the elderly and dying receive excellent care, but not by maintaining a system that incentivizes patients to request and physicians to perform expensive procedures in the last days of life. A friend of my family was stricken with pancreatic cancer that eventually invaded her brain, lungs, and bones. Ten days before she died, she received a hip replacement to remove the cancer discovered there. If patients were bearing these costs more directly, it is fair to ask whether different choices would be made. Premium support is one way to bring costs closer to patients that has been advanced by Republicans like Paul Ryan.

Another complexity: the CDC estimates the cost of healthcare spending related to obesity at $147 billion annually. How can we work together to create public policies that incentivize better habits?

The structure of Social Security is based on demographic trends from the Roosevelt era that no longer apply. In 1950 the average retirement age was 68 and average life expectancy was 71. In 2000 the average age of retirement was 62 and life expectancy was 79. That’s a 17-year increase in non-working years of retirees. Furthermore, in 1950 there were 16 workers contributing for every beneficiary; in 2000, the ratio was 3 to 1. These are two main reasons Social Security will be broke within 30 years.

The system was not designed or intended to subsidize such long retirements, especially for those still able to provide for themselves and contribute to society through work. Thanks to increases in technology and health services, and shifts in the nature of the American economy, Americans can – and should be expected to – work longer. Means-testing is an additional potentially beneficial reform. 

The deficit can’t be ignored. It has consequences in both the near and long-term. Many economists argue that deficits impact long-term interest rates, which can hinder continued economic growth. When investors no longer consider a nation a sound investment, borrowing becomes difficult and chaos ensues, as has happened in Greece. Eventually, deficits must be paid. At the very least, deferred debt becomes an increasingly dire problem for future generations. 

Surely we can agree that these basic facts are not good. May the Alternative Political Conversation spark Christians to lead the way in advocating a bipartisan solution to entitlement reform and, in so doing, positively affect America’s broader fiscal future.

 

 

Topic #1: The Federal Budget Deficit

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Please Consider the following Potential Leading Questions

#1: Can the current federal budget deficit be reduced adequately by only enacting cuts in federal expenditures? If so, what areas should be cut?

 #2: Can the current federal budget deficit be reduced adequately solely by enacting tax reform? If so, what aspects of current tax law should be reformed?

 #3: Is a combination of cuts in federal expenditures and tax reform needed to address our current budget deficit problem? If so, in our current political climate what combination is both feasible and good public policy?

 #4: What approach to cutting our current federal deficit, if any, will not adversely impede the pressing current need to create jobs for the unemployed?

 #5: What are the differences between short-term and long-term solutions to our federal budget deficit problem?

 Launch Date for the conversation: February 1, 2012