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U.S. budget woes more than just a math problem

By Linda J. Bilmes

December 13, 2010

Washington is awash in plans for ways to bring the national debt under control. But even the most thoughtful and comprehensive proposals, including those in the bipartisan Simpson-Bowles national fiscal commission report, have tackled the problem as something to be solved with the right combination of tax increases and spending cuts.

America's budget troubles are more than a math problem. Before we can come up with a real solution, we need to examine our core values and priorities as a nation. Rather than simply asking where can we trim and how can we raise revenue, we need to ask what is important enough that we want to keep spending money on it and what is OK to abandon.

At the heart of this discussion is the issue of fairness. Are we willing to continue consuming now at the expense of our children and grandchildren's welfare? Are we really willing to see ordinary people without jobs and losing their homes at the same time that we preserve lower taxes for the wealthy?

Over the past two decades, our robust consumer-led economy and our willingness to pile up trillions of dollars of debt allowed us to live with the illusion that we can "have it all. " Now it is becoming clear — underlined by the plight of overspending European countries — that this isn't the case.

We shouldn't be slashing federal spending amid a recession. But we do need a credible plan that will enable the United States to generally balance its budget over the long term, so that in good years we have a surplus while in tough times we borrow and spend to keep the economy afloat.

Contrary to the views of some newly minted members of Congress, financial Armageddon is not just around the corner. The United States is not Ireland. We can continue to borrow money at low interest rates for a considerable time. That won't last indefinitely, but in the short run we should be spending much more to revitalize the economy. At the same time, we should be designing a belt-tightening regime for the long run that will reduce our reliance on debt. But this approach seems to be elusive, for several reasons.

First, Congress is bedeviled by its short political cycle. The Simpson-Bowles commission, for example, proposed a 15-cent gasoline tax that would go toward paying for federal highway projects. The idea is to enable us to fund necessary projects out of current revenue instead of borrowing and increasing the deficits. But few in Congress will have the guts to support a measure that would be felt directly by the voters they will have to face in less than two years.

Moreover, the debate is hampered by a distorted government accounting system that focuses almost exclusively on upfront costs while ignoring long-term costs. When we let the contract for a new aircraft carrier, for example, our accounting system just tracks the initial cost, not the cost of maintaining the ship for the next decade. The official government figures show that the wars in Iraq and Afghanistan have cost $1 trillion. But providing medical care and benefits to disabled veterans and replacing equipment will cost trillions more over the coming decades — costs not reflected in the initial budgeting.

At the same time, Congress gives a frosty reception to investing in things with payoffs that are too distant or intangible. High-speed rail projects, for example, have obvious benefits, but our accounting system doesn't capture such positives as reduced congestion on the roads. Spending public money to keep people from losing their homes to foreclosure might well be in the public interest, but the system isn't set up to account for how it might be more expensive to put people in public housing rather than subsidize their mortgage payments.

An additional complication comes from the fact that federal programs are often partly financed by states and municipalities. Unlike the federal government, many states can't run deficits. So they cut spending just when the economy needs it most — witness November's disappointing unemployment figures, in which 11,000 of the lost jobs came from local government. If we are to come up with a way to balance out government spending, we need to take a fresh look at whether such vital programs as education, police, fire and sanitation should continue to be financed primarily by local taxes.

Despite the challenges, the U.S. cannot resolve the debt issue without having a more fundamental debate about our national priorities. We need to put aside minor points such as earmarks and focus on the handful of key issues that go to the core of our values as a nation. How much defense spending is really needed to ensure our safety? How much healthcare should be provided under Medicare and other government programs? To what extent do we pledge to care for our elderly population through Social Security? And perhaps most important, how should the burden of paying for these programs be shared across our country, between rich and poor?

These tough topics are too important to subcontract to a presidential commission, no matter how well intentioned. The president needs to lead the country in restoring our compassion and our sanity.

Linda J. Bilmes is a senior lecturer in public policy at Harvard University and the coauthor of "The People Factor: Strengthening America by Investing in Public Service." She served as assistant secretary of the Commerce Department from 1999 to 2001.