Why you’re to blame for the deficit, and what to do about it

David Leonhardt - Special to Yahoo! News
Yahoo! NewsFebruary 11, 2013

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We have come to believe a story about the deficit that is largely not true. It’s a comforting story, to be sure. It holds the promise of a painless solution, because it suggests that the country’s huge looming deficits are not really our fault. Rather, they seem to stem from weak-willed politicians, wasteful government programs that do not benefit us and tax avoidance by people we have never met.

In truth, the coming deficits stem, above all, from the fact that most Americans are scheduled to receive far more in Medicare benefits than they have paid in Medicare taxes. Social Security contributes to the problem, too, as do the world’s largest military and a tax system that has recently been collecting less revenue, as a share of gross domestic product, than at any point in the past 60 years.

Ask Americans if they are willing to accept higher taxes on themselves, and most say no. Ask if they favor cuts to Medicare and Social Security, and most again say no. “The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans,” Doug Elmendorf, the director of the Congressional Budget Office, said in 2010, “and the tax revenues that people are willing to send to the government to finance those services.”

This disconnect is not a reason to despair. From a purely economic perspective, the deficit remains a manageable problem. Relatively modest changes to Social Security would eliminate its shortfall. Military spending could be cut significantly and still be much greater than in the past and much greater than in any other country. Some domestic government programs truly are wasteful and could stand to be cut. Even Medicare and Medicaid, the heart of the problem, are not intractable. After all, every other country in the world, including some that get medical results as good as ours overall, spends far less on health care than we do. It is possible.

But none of these narrow, technocratic issues is the first one that needs to be addressed. The goal of deficit reduction can’t simply be arithmetic. It has to be philosophical as well. What kind of government and society do we want? What are the tradeoffs between spending money on the elderly and spending it on the young? What forms of spending are crucial to a modern economy—and yet the private sector, left to its own devices, will not do them?

Eventually, the country will have to confront the deficit we have, rather than the deficit we imagine. The one we imagine is a deficit caused by waste, fraud, abuse, foreign aid, oil-industry subsidies and vague out-of-control spending. The one we have is caused by the world’s highest health costs (by far), the world’s largest military (by far), a Social Security program built when most people died by age 75—and, to pay for it all, the lowest tax rates in decades.

David Leonhardt is the Washington bureau chief of the New York Times. He won the Pulitzer Prize for commentary in 2011. This article was adapted from his new e-book, “Here’s the Deal: How Washington Can Solve the Deficit and Spur Growth,” published Monday by the New York Times and Byliner.

"Here’s the Deal" is available for $1.99 as a Kindle Single at Amazon, a Quick Read at Apple’s iBookstore, a Nook Snap at BarnesAndNoble.com, a Short Read at Kobo, and at NYTStore.com/ebooks.