If you want to appreciate the dilemma policymakers face on the exploding federal debt, just check a national survey released late last week by Quinnipiac University.
According to the survey, 65 percent of Americans favor high income-tax rates on households earning more than $250,000, while 67 percent oppose eliminating the home-mortgage-interest deduction, which would provide tens of billions of dollars to the government.
Seventy percent oppose cutting federal spending on Medicaid, the joint federal and state program that provides health coverage for low-income Americans. Meanwhile, 55 percent are against cutting the military budget, and 51 percent oppose gradually raising the eligibility age from 65 to 67 for Medicare, which pays health costs for the elderly.
As actor Strother Martin, who played the notorious prison captain in the 1967 film Cool Hand Luke, famously said, "What we've got here is a failure to communicate."
With President Barack Obama and congressional Republicans engaging in a Kabuki dance on how to compromise on a long-term deficit-reduction package, there is a disconnect between what budget analysts know should be done and what Americans believe should be done to sweep away trillions of dollars in projected deficits during the next decade.
Here is the brutal reality: Without restraining federal spending on defense and the entitlement programs of Medicare, Medicaid and Social Security, the only way to balance the federal budget during the next five to 10 years is to dramatically raise income and investment taxes on Americans in every income group. Otherwise, federal debt will continue to grow.
So why should we care if the government cannot cut its publicly held debt, which has reached 70 percent of the nation's gross domestic product? A report last month by the nonpartisan Congressional Budget Office warned that federal debt "cannot grow faster than the nation's output indefinitely," and that "prolonged increases in debt relative to GDP can cause significant long-term damage to . . . the broader economy."
In many ways, it's difficult to blame the voters. Since President Ronald Reagan's election in 1980, voters have essentially been told by politicians that they can have it all -- tax cuts, more spending and balanced budgets.
The last time any presidential candidate pledged a tax increase on all Americans was Democrat Walter Mondale in 1984, and he lost 49 states. No presidential candidate wants that kind of misery.
This past election was more of the same. Republican Mitt Romney promised to eventually balance the federal budget while saying he could extend the 2001 and 2003 income- and investment-tax cuts that expire at the end of the year.
By contrast, Obama campaigned on raising the upper income-tax rate from 35 percent to 39.6 percent on families earning more than $250,000 a year. While Obama did not explicitly say it, the clear message of his campaign was that increasing taxes on wealthy families would put a major dent in the budget.
Unfortunately, that is not true.
As the CBO inconveniently pointed out in its November report: "Very few policy changes, taken individually, can shrink the deficit....A wide gap exists between the future costs of the services that the public has become accustomed to receiving from the federal government -- especially in the form of benefits for older people -- and the tax revenues that the public has been sending to the government to pay for those services."
Distributed by MCT Information Services
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