(July 15, 2011) Michele Bachmann would stop the borrowing and prioritize Social Security, Medicare and defence.
National Post, July 15, 2011
Democrats like President Barack Obama want to restrain the U.S. government’s debt by increasing the debt ceiling, increasing government debt, increasing government spending, and increasing the government’s level of taxation. The improbable Democratic strategy: Hope that the taxes will pay down the debt without depressing the economy.
Republicans like House Speaker John Boehner want to restrain the U.S. government’s debt by increasing the debt ceiling, increasing government debt, increasing government spending, and decreasing the government’s level of taxation. The improbable Republican strategy: Hope that tax cuts and a slower increase in indebtedness will let the economy grow fast enough to outrun the increasing debt.
These two improbable approaches to solving a debt crisis that all agree require drastic action are widely seen as prudent and sensible by others in government and by pundits of the left and right. What is seen as imprudent and senseless by both Democratic and Republican elites is the approach taken by Tea Party favourites such as Michele Bachmann. The Bachmann approach: Stop the borrowing, pay the interest on the existing debt to avoid a default, and then prioritize spending for the balance of the budget, starting with Social Security, medical, and military expenses.
What could be more sensible? Most agree that the debt not only threatens America’s Triple A credit rating but the country’s economy and its pre-eminence in the world. The current interest on the debt that everyone now fears — US$225-billion per year — is projected to more than triple to US$792-billion in a decade, a sum equal to today’s entire Medicare and Medicaid bill. Bachmann’s straightforward approach would quash these threats and spare Americans from becoming ever-more vulnerable to the vicissitudes of the financial markets. And it would be achievable merely by restoring a smaller federal government.
How would Bachmann do it? Today’s debt interest of US$225-billion remains manageable, amounting to but 10% of the US$2.2-trillion in taxes and other receipts that the government will be bringing in. After paying the interest, Bachman would use most of the almost US$2-trillion that remains to make the payments for Social Security, Medicare and Medicaid, and the various defence and veterans-related expenses. These expenditures would consume two-thirds of the federal government’s ready cash, much less once the fat is cut in these areas.
Then she would set out the priorities for the remainder of the government’s budget, both in terms of what new revenues to raise and what spending to cut. Bachmann hasn’t laid out her priorities because neither Republicans nor Democrats are now receptive. But here’s what it would take to balance the books.
First, scrap government departments that overlap with functions traditionally and primarily met at the state level, and that often do more harm than good. The country’s educational performance declined after the federal government imposed its educational priorities on the states, which have the prime responsibility for education. Scrap the Department of Education, a failed Carter-era experiment that had its roots in president Dwight Eisenhower’s desire to imbue the education system with Cold War thinking, and out goes a US$77-billion annual expense. Likewise, scrap all or parts of the Department of Energy, the Small Business Administration, the Federal Transit Authority, Federal Highway Administration, Housing and Urban Development and other federal areas that intrude on state and local responsibilities. Apart from the dollar savings from eliminating duplication and cancelling perverse projects, the quality of public services is likely to rise when the former federal functions move closer to home in state or local government, or become privatized and are delivered in the private sector.
This slimming-down exercise would not only slash the US$1.1-trillion deficit expected in 2012 by one-third to one-half, it would eliminate bureaucracy that burdens business, lowering costs to the overall economy and spurring its revival, in the process taking people off the welfare rolls and making them taxpayers that further shrink the deficit. And because the deficit would have declined dramatically, the growth in the federal debt would have slowed to a crawl.
Bachmann would then be able to wipe out the balance of the deficit through asset sales. The U.S. federal government holds assets that it values at some US$3.5-trillion, and assets worth trillions more to which it has never assigned a value. Many of those assets would have more value in private hands able to recognize the assets’ potential. A federal government sale of its mineral rights and associated lands alone could fetch enough to balance the budget. And/or it could sell businesses that in the United States are generally in private hands, such as power marketing authorities, as Bill Clinton proposed in 1996, and the Tennessee Valley Authority, America’s largest public power company. And/or Amtrak. And/or the postal service, which in other Western countries has been privatized.
And/or any number of the other businesses that the federal government has decided in recent decades to move into that neither add value nor are justifiable in an era that calls for far-reaching reforms to avert unthinkable financial consequences. Every sale would generate immediate cash plus ongoing personal and corporate tax revenue from the new and improved businesses to emerge.
The Bachmann approach has recently been dismissed by prominent Republicans such as Karl Rove, who point to an analysis by the Bipartisan Policy Center, which shows that the gap between the government’s receipts and outlays amounts to 40% of the federal budget, an unbridgeable gap.
But this organization’s analysis is based on the period from Aug. 2 — the drop-dead date when many fear the government will run out of funds — to the end of August, a truncated month that happens to paint an especially black picture of the U.S. shortfall. Nevertheless, the Bachmann approach, with a friendly amendment, still represents the most prudent path to fiscal integrity.
The friendly amendment? Extend the debt ceiling for a limited time, say one year, enough to get over the August hump and then complete the needed asset sales. After that limited period, the debt ceiling would revert to the level of today in a country that no longer stared into the abyss.