Reduce the Deficit, Who are You Kidding?

by Rabbi David Eidensohn  2/16/06

In his 2006 budget, President Bush promises us to cut the deficit in half. We feel this is unlikely. First, the President's figures.

We don't like to question the judgment of the Commander in Chief, but when he projects a decline of the American budget deficit, and especially when he predicts it to decline in 2008, only two years hence, to be below a forty year historical average of 2.3 percent of Gross National Project, we have to respond.  Just take a look at military spending, which we surely need, and cannot eliminate, in the middle of two wars, in Iraq and Afghanistan, at a time when Russia and China are making aggressive moves and even statements inimical to our benefit. Military spending is rising, and the costs of wars are rising. This is one factor, a major one, that determines how much we spend. To say that we will lower the deficit in a year or two is a wild dream.

Here is an official government table of projected military spending, and its rise, up and up. The American government's entire income for a year is about 2.1 trillion dollars. Military spending is just under half a trillion, and rising. The red lines on this graph, put there by the official Congressional Budget Office, project military spending to rise by billions of dollars for the years when President Bush predicts deficits to drop dramatically . We invite you to read the graph with our comments, and then read the government text below the graph. Our remarks follow beneath it below.

If military spending will go from today's 410 billion dollars to about 522 billion in 2011, we have an increase of 112 billion dollars per year, that will surely increase the deficit, which is now about 8 trillion dollars. But this is not the whole problem.

Let us look at the deficit itself, in plain terms, in numbers. According to official CIA statistics, the US government earned, in 2005, the sum of 2.1 trillion dollars, and spent the sum of 2.466 trillion. We spent more than we earned. The difference, the minus number, is the deficit, and it equals 347 billion dollars. That is the amount we spent in 2005 over the amount we earned. President Bush assures us that these kinds of deficits are going to decline in 2006 and 2007 and by 2008 they will be lower than a forty year old average.

Now, we ran into a deficit because we had heavy military spending, which is rising. But there is another major factor. We have an annual deficit, and as the years go by, these annual deficits are not repaid, and become the national debt. Past deficits become national debt, and the national debt is money borrowed from others with Treasury Bonds and other devices, which pay interest to the lender. Because the deficit, even if it declines, still remains, we cannot repay the national debt, and therefore, it continues to grow. It grew in the end of 2005 to the incredible sum of eight trillion dollars, or about four times what we earn. How much does it cost to finances eight trillion dollars?

According to the official Bureau of the Public Debt Interest Expense date, in 2005, the US Government paid 352 billion dollars in interest alone. This amount rises every year, because the national debt rises every year. For almost every year since 1988 the interest paid on the national debt has risen. It rises very fast. It rose from 214 billion dollars in 1988 to 352 billion dollars in 2005. There is no chance that the interest payment on the national debt, known also as the Debt Outstanding, will decline; surely, it will rise. Therefore, two major components of the annual budget, military spending and the interest on the national debt, or Debt Outstanding, are rising quickly, and will not decline.

If we add just these two figures together, military and interest payments, together, we have about 450 billion for military in coming years and interest payments of 350 billion, for a total of 800 billion dollars, for just two items! This 800 billion will rise, and will, in coming years, surely make deficit reduction difficult.

We now come to the most sobering of economic facts. We earn 2.1 trillion but owe 8 trillion, as we mentioned previously. This is not the worst information. The real problem is not what we owe, but the process of the national debt rising, ever larger, very quickly. In 1983, after fighting WWI, WWII, the Korean War, and the Viet Nam war, our national debt was only 1 trillion dollars. From that time to the present, or by the end of 2005, the national debt hit 8 trillion dollars. Thus, in about twenty years, our national debt increased roughly around 7 trillion dollars. Remember, we earn only 2.1 trillion a year, and for our national debt to explode from a number half our income to a number triple our income in twenty years is frightening.

Let's talk about the national debt, let's talk about paying for it, and for a rising military cost. Let us use our time and energy to seek a solution to Social Security, which at 11 trillion is going to at least double the national debt in a few years. Let us talk about the costs for Medicare, which may reach 70 trillion dollars. And if we have any strength left in us, it won't be used to talk about disappearing deficits.

One more point. When we talk about deficits, and their decline, let us talk about actual dollar figures. Today our deficit is 347 billion dollars, and in a few years it will drop to half, or 175 billion. Nobody, of course, is saying that, because that is ridiculous. Mr. Bush is actually saying something else. The deficit will decline as a percent of the Gross National Product. Thus, if the economy improves, and GDP rises, automatically, the deficit declines, even if it doesn't. Thus, if the deficit, today 347 billion, rises by ten percent in a year, but the economy rises by 11 percent, someone can claim that the percentage of the GNP held by the deficit has declined. But the deficit has not declined. The amount of money added by the deficit to the national debt has not declined, is has grown. The amount of money we must pay for interest on this "declining" deficit is growing, not declining.

Thus, not only are the promises made by Mr. Bush probably false, because we don't really expect dramatic drops in the deficit even as a percentage of the economy, but even if that does happen, and we hope it does, the message of reducing the deficit by such a standard has nothing to do with the problem of deficits.

The fault for false hope is not the politician's. The politician knows what we want to hear, and he cooks the books, with our encouragement. Our lack of concern is the true deficit. When we are concerned, no politician can get away with  accounting configurations to conceal an impending fiscal disaster. When we are not concerned, astute politicians will feed us the news just the way we want it.