Fiscal Danger and Opportunistic Politics

(This is also my Sunday column in the San Jose Mercury News.)

In politics, nothing succeeds like irresponsibility. It works wonders in the short term.

Irresponsibility permeates the fiscal policies that now dominate in Washington and Sacramento. Last week, the Bush administration confirmed that the federal budget deficit would be the largest on record, and a few days earlier California’s governor and Legislature enacted yet another smoke-and-mirrors budget.

So America and its largest state continue our borrow-and-spend ways. We’re only postponing the hard choices for others to make, but that’s standard procedure.

The federal situation is by far the more alarming. It begs for actual leadership.

President Bush is leading, but the wrong way, and has reinforced how far we’ve come from the days when Republicans were the sensible ones. Peter G. Peterson, who served as Commerce secretary under Republican Richard Nixon, assails the administration in his bestselling new book, “Running on Empty.”

Peterson, now an investment banker, calls the current administration and Congress architects of “the biggest, most reckless deterioration of America’s finances in history.” He’s right, but he’s shouting into a hurricane.

It’s not only the Republicans to blame, incidentally. Peterson also has tough words for the current spineless crop of congressional Democrats, many of whom have voted for the pad-the-rich Bush tax cuts and for spending bills that would have broken the budget even in good times.

But there was a time, quite recently, when the American economy grew in large part as a result of financial markets’ confidence in federal fiscal probity — a time that started with a tax increase and ended with record surpluses. Of course, the latter part of the 1990s also became a financial bubble that contributed to the large surpluses; politicians and regulators from both parties allowed the corporate sleaze to take root.

When it comes to fiscal sanity, John Kerry gets it, sort of. “Over the last three years, record surpluses have turned into record deficits, with more deficits stretching into our children’s future,” says his campaign Web site.

It goes on to claim that a Kerry administration would “cut the deficit in half and cut taxes for middle-class Americans and small businesses while funding better, more affordable health care for all Americans, improving our schools, and securing our country.”

In a parallel universe, maybe, but in this one the numbers don’t begin to add up.

At least Kerry would roll back Bush’s tax cuts for the highest income group. That’s a start on the problem, but not nearly enough when you consider the expanded programs he’s promising.

Back in California, Gov. Arnold Schwarzenegger and the Legislature have mocked their budgetary promises. This is no surprise, given the horrible choices they face, but they were elected to lead, not dissolve into more of the same old backbiting and budgetary flimflam.

Yet here we go again. The new budget does pretty much what the last one does — pushing the day of reckoning into the future — with a few cosmetic changes.

California’s state government will spend about $105 billion without raising taxes. To accomplish this, the state will cut programs slightly, make extravagant assumptions about revenue and borrow heavily.

Meanwhile, State Treasurer Phil Angelides issued what he aptly called a “credit-card statement” showing the debt that someday must be paid in full. Unlike federal taxpayers, Californians can’t get their legislators to print money.

The governor’s secretive “government reform” process has come up with recommendations that would allegedly save $32 billion over five years. Some of the ideas are plainly good ones and will help streamline some governmental functions.

But as Mercury News reporters Ann E. Marimow and Mark Gladstone noted late last week, most of that alleged $32 billion — alleged because big assumptions are built into it — wouldn’t do anything to bring the state’s general fund into balance.

Looking for someone to blame, ultimately, for the federal and state fiscal woes? Start with the mirror. We don’t seem to care enough about this to force honesty in budgeting, not to mention serious attention to deficit spending.

We’re loading big trouble onto our kids. They’ll pay for our selfishness, via higher taxes, lowered living standards and/or inflation. They won’t be happy when they realize what we’ve done.

Comments


Posted by: on August 9, 2004 05:08 AM

The problem isn’t just Congress and the California legislature — it’s that many citizens simply don’t make the association between taxing and spending. People on the right complain about the government “stealing” their money without considering the services it provides, while those on the left seem to think that there is an endless supply of government money available to address whatever causes they identify, without considering where that money comes from.


Posted by: on August 9, 2004 05:55 AM

I agree with Moose’s first sentence, but not his characterization of left vs. right…lately it’s been the right wing thinking that they can spend what they want without having the money and without consequences. It’s a sad commentary on the state of the GOP that “conservative” no longer means fiscal prudence, limited government power, and respect for the law.


Posted by: lightning on August 9, 2004 06:31 AM

It’s not just that “many citizens simply don’t make the association between taxing and spending”. It’s that citizens don’t see what Government is really doing. Government (espically good government) is largely invisible. A lot of people seem to believe that Government is a money sink — they take our taxes and waste all of it except the little sliver that they actually see.


Posted by: on August 9, 2004 09:44 AM

Just a Quibble Dan… but what exactly are you talking about when you reference “America and it’s largest state”? Last time I checked CA wasn’t even in the top two. Or are you refering to population alone. Even then I’m not sure that label applies CA, but I’ll admit I don’t have the population numbers to back that up. The problem is you make that kind of statement and I know rationally that at least Texas and Alaska are bigger states, maybe not more populous, but bigger. So I start to wonder about the quality of the rest of the story.

This is a problem I have with news reports of all mediums. Maybe I’m deluding myself but I expect that those who report the news to do some basic fact checking. If it’s information that a six year old could find on the internet in a reasonably short amount of time, I have an expectation that at a minimum the editors/producers of news do some fact checking, to ensure the reporters aren’t going to stick their foot in their mouth.

This rant isn’t entirely aimed at you Dan. More a condemnation of the news media as a whole. TV stations, newspapers, and magazines want to win our eyeballs and be our source for information, but if they allow mistakes to slip through they are diminishing their editorial statement. Of course this is just my opinion… your mileage may vary.


Posted
by: on August 9, 2004 09:58 AM

Is it too cynical to suggest that the massive federal deficit might be part of a long-term plan to push the Republican agenda of reducing government and government services? Eventually the deficit will be so big that something has to be done – and gosh, since no one wants to pay more taxes, they will have to cut government services.


Posted by: on August 9, 2004 10:29 AM

IMO it is precisely as Bill puts it: Bush is running up a deficit to force a later confrontation over government services. It worked in Texas, where he pulled the same trick when he was governor. A $1.7 billion tax cut had to be covered by a $1 billion surplus…but in 2004 TX faces a $3.7 billion shortfall and service cuts.

The URL cited points to a report on effects. Some of the critics contend that there were other problems with service expenditures in TX (like unexpected drug costs). Still, in the face of rising expenses there is little motivation to reduce income. The tax cut is creating problems in public policy years after it was enacted.

http://www.nytimes.com/library/politics/camp/071400wh-bush-texas.html


Posted by: on August 9, 2004 11:29 AM

Peter (not Peter G), California is the biggest state by far in population, and in size of economy, and in size of state budget, all of which are the most relevant to discussing budget deficits.

Do you see the irony in ranting about media lack of fact checking when you couldn’t bother to do it yourself? Or was it, never let the facts get in the way of a good rant. If you’re trolling, well, you got me.


Posted by: tim on August 9, 2004 11:40 AM

Bill,
If you take a look at Grover Norquist, you’ll see that your hunch is correct. He is the Republican anti-tax crusader who is quite influential at the White House.


Posted by: on August 9, 2004 12:37 PM

some definitions related to this discussion:

Democrat: Someone who wishes the government would provide welfare for poor people.
Republican: Someone who wishes the government would provide welfare for rich people.

Conservative: Someone who wishes the government would provide welfare for LESS people.

=================================

Near as I can tell based on results, we haven’t had conservatives in any positions of real power in the government in the last 40 years.


Posted by: on August 9, 2004 08:57 PM

Bush is the biggest spender in US history, liberals should love the idiot. He has spent more on social programs than any President ever. The problem is when the day of reckoning comes and the bills are due and Americans can’t pay half their paycheck to the government the only people that will be hurt are the poor and middle class, people who depend on others (ie business, government) for wages…I have a rich friend who has half his assets spread around the world so even if the US sinks into the sea he will be rich in any country he goes to. I wish I was that lucky. Ironic thing is he has made millions in governent contracts for section 8 housing.


Posted by: on August 10, 2004 04:35 AM

Peter G: As I conceeded I didn’t have the facts handy. But the point remains.. if you lead with a statement that CA is the largest state you make an assumption that all your readers will have the same thought process that you the author have. With as vagaue a statement as that is, that’s a pretty wild assumption. Let’s put it in perspective… If “W” were up in Alaska for some reason talking about the ecomony and made the same statement about CA being the largest state, because in his mind (or his speechwriters minds) they’re talking the economy. You don’t think people would jump all over the mistake.

In my opinion newscasters and journalists are getting sloppier and sloppier in their reporting and coverage of stories, on both sides of issues. And I’m willing to allow for personal bias in the reporting. But when it comes to actual verifiable facts that’s why these people have editors and producers. To keep them from making themselves look like fools.

My take on these situations is that once I’ve been handed one area where the author is vague or incorrect, it reduces the value of the rest of the statement. Maybe I have an unrealisticly high standard for journalists, but obviously I didn’t see where Dan was headed with the statement, and it causes me to question the whole piece. I would think as an author/journalist Dan would want to avoid confusing/misleading his readers as much as possible. Problem is easily solved by throwing one word in there that he’s referring to the economy.


Posted by: on August 10, 2004 02:24 PM

Joe:

Bush’s maintenance of the social program spending of the past several decades (originating with Democrat dominance of Congress) proves, beyond a doubt, his “compassionate conservative” credentials.

Liberals failure to concede this is a deep, sweeping hypocrisy. For the Left, it’s all about POWER, and at the moment, they don’t have it.


Posted by: on August 11, 2004 01:29 AM

Part of the problem is also that corporations are paying near the lowest level of taxes that they have in the last 70 years. So where are all the new jobs they are supposed to be creating with their tax savings????

Anyone see this today? This really takes the cake! Insert foot into mouth and take a BIG bite…

=======================
President Accepts ‘Really Rich People’ Cheating On Taxes
August 10, 2004

President Bush claimed yesterday that rolling back tax cuts for those earning over $200,000 per year is unnecessary because “the really rich people figure out how to dodge taxes anyway.”

Rather than suggesting ways to close tax loopholes, increase penalties for tax cheaters, beef-up IRS enforcement, and make the tax system more progressive, President Bush blithely accepts a world where the “really rich” swindle the system while everyone else picks up the tab for important government services.

http://www.americanprogressaction.org/site/pp.asp?c=klLWJcP7H&b=83323
=============================


Posted by: on August 11, 2004 11:08 AM

I think they should do away with withholding. Everyone should get their money and a monthly bill from the Federal Government. The system of withholding is a sneaky way to do business and it hides the costs.

Then people get refund and they think they received a gift from the government when it was their money all along!!!


Posted by: on August 11, 2004 12:19 PM

<
p>Dan, you’re completely right – who do we have to blame? ourselves, we vote these people in, year after year after year.

Here’s the rub: people don’t understand the truth, the tough choices, so consequently they vote for the politicians who promise them all these social services and programs, lower taxes, etc and then can’t deliver them. How do we get them to understand the trade-offs? there’s no free lunch, these programs cost money and money is generated through taxes. It’s not complicated.

I’m a Libertarian and they have solutions to many of these issues…for example, they’d stop prosecuting “victimless” crimes (eg. prostitution). They’d privatize health care. In virtually all cases, the government is the worst entity to deliver services, the private sector does it better.

I always appreciate an article that, after pointing out the problems, suggests solutions, they’re out there. John Burton comes off the wrong way: he is forever criticizing the Governor, opposing the budget, yet does he ever offer an alternative? a solution? maybe he does but it doesn’t feel like it.

We pay enough taxes, we just don’t deliver efficiently.


Posted by: iProceed.com on August 12, 2004 09:37 AM

Our analysis shows that taxes might go up as early as next year. We have based our analysis on the rising federal deficit, continually higher federal spending (particularly defense and homeland security), and falling income of Americans (leading to lower tax collection). We expect that this will further impede our growth (and recovery from the slow growth period since 2000).

iProceed.com


Posted by: on August 12, 2004 01:28 PM

Oh geeze…here we go again with the ignorant comments.

Dan Gillmor writes, “When it comes to fiscal sanity, John Kerry gets it”

Kerry has never seen a tax hike that he didn’t like. That’s “fiscal sanity” in your world? What are you? A government drone? Kerry also wants to raise spending more than Bush has already done. Isn’t that one of your complaints against Bush? Yeah…thought so. You’re a partisan Dan.

“But there was a time, quite recently, when the American economy grew in large part as a result of financial markets’ confidence in federal fiscal probity — a time that started with a tax increase and ended with record surpluses.”

Wow! You can’t get any more ignorant than this statement! Let’s start with the facts: Clinton gave us the highest tax increase in history in 1993 which resulted in an economic recession. We didn’t start getting out of said recession until the Republican Congressional tax cut of 1995. (look it up..this is all easily available for people who search for the truth)

“pad-the-rich Bush tax cuts” and “At least Kerry would roll back Bush’s tax cuts for the highest income group.”

I suggest that Dan Gillmor look up what the “Chapter Sub S” IRS tax filing includes (hint: $200,000 a year isn’t “rich”, it’s a small business who shows that much money coming in; it isn’t profit). Maybe he’ll stop his class envy tax beliefs. Then again, I don’t have much hope. (He’s on the right track being against high government spending, but then again he thinks Kerry is “fiscal sanity.)

entertainment news writes, “Everyone wants affordable health care, better schools, and more jobs, but the same people will vehemently oppose a tax increase.”

Lest you think that only the government can provide these services. Here’s a hint for you: the government is not a business and doesn’t create jobs or affordable health care for that matter. (and no, I’m not counting government bureaucratic jobs either) It doesn’t even provide quality schooling even though we pay out the nose for it. <<ended a sentence with “it”; government schooled ;)

Jojo writes, “Part of the problem is also that corporations are paying near the lowest level of taxes that they have in the last 70 years. So where are all the new jobs they are supposed to be creating with their tax savings????

Anyone see this today? This really takes the cake! Insert foot into mouth and take a BIG bite…”

Well Jojo, if you stray away from sites like americanprogressaction.org and into some real news sites, you’d see that the economic indicators are up across the board as much as you could expect from the small tax cut that Bush passed.

“Rather than suggesting ways to close tax loopholes, increase penalties for tax cheaters, beef-up IRS enforcement, and make the tax system more progressive, President Bush blithely accepts a world where the “really rich” swindle the system while everyone else picks up the tab for important government services.”

Uh yeah. Reality shows us that people will run away from excessive taxation. And the people who can run away easily and legally are the “really rich” that you seem to despise. And why would you want to make the system more “progressive”? Don’t you really mean regressive? You penalize success. That’s regressive, isn’t it? Not to mention socialistic redistribution.

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