We in America tend to forget history. So here is a quick recollection of the past decade so we can understand why we have this enormous deficit. United States had a surplus of 230 billion for the fiscal year 2000 and with the surplus from the previous year had accumulated enough to pay off 360 billion of its debt. Yet by the end of the 2008 we managed to pile up a debt of 5 trillion although the unemployment rate during most of those years remained at around 5.5%. We can blame it all on 9/11 but Bush Tax reductions of 2001 and 2003 had lot to do with the increase in deficit. Those tax was supposed wipe out all debt by 2010. Instead we had a financial crash in 2008.
The wars were one distraction. The events that unfolded after the invasions lend credence to the fact that the plans to invade Iraq were already progressing before the twin towers fell. Otherwise how can one explain the half-hearted pursuit of Osama bin Laden in Afghanistan while deploying a greater force to attack Iraq in search of nonexistent terrorists and WMD? While the Administration was busy coping with the aftermath of the ill conceived wars, the deregulated financial markets schemed to peddle a new type of mortgage instrument that required the borrower to pay only the low interest for a fixed number of years and then convert to the standard home loan. This lured the unsuspecting consumers into buying properties based on initially low payments. By the middle of the 2008 when the period of low interest rates expired, the home owners found it difficult to make the new monthly payments, the housing bubble burst leading to the collapse of our financial institutions and many major banks lost their viability. Without the intervention of the Federal Government we could have faced a replay of the great depression.
Last November, the Republican with the help of the Tea Party zealots won the House of Representatives. Their mantra was to cut the government in order to reduce the deficits. But what Paul Ryan, the Republican Chairman of the Congressional Budget Committee, is proposing has nothing to do with reducing the deficit but has a lot to do with imposing the Tea Party/Republican ideology. His plan for cuts in the Medicaid, Medicare and other safety net services for the poor will bring prosperity only to the top 2% of the Americans who will see their taxes lowered. The cuts in the funding of the regulatory agencies such as EPA and FDA, that protect the air we breathe and food we eat, will free the purveyors of these commodities from adhering to standards. The projected unemployment of 4% will be hard to accomplish as the cuts in the investment into education and research take effect. China has already dethroned us from being the largest exporter and soon will attack our high tech industries that manufacture the products for export.
Congressman Ryan speculates that lowered corporate taxes will induce the businesses to invest in the United States. The corporate taxes at 28% are already lower than what the businesses pay in Germany, France and the United Kingdom. The top tax rate for the individuals in those countries is 50% and they have to pay another 20% VAT (value added tax) every time they buy a product. The Medicare and Medicaid privatizing through the vouchers only assures continued healthy profits for the insurance companies. If the past decade is any indications the health insurance premiums will continue to increase for the elderly and the poor, who could least afford them. His sponsors, the 2% of the population, do not need any assistance with their medical bills. Cutting the Pell Grants will stop the upward economic migration. When compared to the other industrialized nations, the United States, the wealthiest country in the world, has a large number of its inhabitants live below the poverty level.
Governments in democratic societies undertake programs in order to even the field for its citizens. The programs emerge because the people demand them and the regulations are implemented to protect the less sophisticated members of the society from the transgressions of the more powerful groups. Unfortunately in our system once an agency or a program is created it acquires a life of its own and its termination is prevented by either the legislators or the sponsoring lobbyists. As a result our Federal government has agencies on top of other agencies addressing identical problems.
We have become so sophisticated that we can overcome any moral or ethical concern in order to pursue our goals. This thinking leads to corrupt machinations needing supervision. The ideologues would like to take away the government’s ability to do just that. The gulf between the rich and the poor is further widening as the middle class vanishes. The problem of the rampant deficits is necessary and presents a monumental challenge that will require pragmatic leaders with moral strength to only serve the interest of the nation and not their ideologies.
My future blogs will discuss some of the ideas that are being considered to reduce the deficits. I hope that the above post will motivate the readers to seek the facts and not parrot the sound bites of others who have their own axes to grind.
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