Our Dangerous Budget and What to Do About It - Jeffrey D. Sachs

[ashling]

The December budget deal, worked out between Representative Paul Ryan and Senator Patty Murray, has been widely greeted with relief. Since the first days of the Obama Administration in 2009, Washington has been in a pitched battle over the budget, with endless fights over stimulus packages, temporary tax cuts, spending limits and sequestration, fiscal cliffs, debt ceilings, and government shutdowns. Who would not welcome a moment of bipartisan calm, especially when the economy still needs to break out of its prolonged torpor?

Yet the budget battles have never been quite what they’ve seemed, and the new bipartisan agreement is not a victory of bipartisan reason. Despite all of the budget turmoil over the past five years, the long-term trajectory of the US budget has remained remarkably and dangerously unaltered. With this new agreement, the US takes another step toward a diminished future.

The long-term budget trajectory is the combination of three trends. First, ever since Ronald Reagan’s successful assault on government, beginning in 1981 (“Government is not the solution to our problem; government is the problem”), federal tax revenues in a normal year have stabilized at around 18–20 percent of the Gross Domestic Product (GDP). Adding in state and local governments, the total tax take in the US is around 30 percent of GDP. In Canada, Europe, and Japan, the total tax take (national, state, and local) is at least several percentage points of GDP higher than in the US. Canada averages 38 percent, Germany 45 percent, and social democratic Denmark 55 percent. (Supporters of supply-side economics may be interested to learn that Denmark ranks as the happiest country in the world in the Gallup International polling of life satisfaction.)

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Much as conservatives hate to admit it, the landslide election of Bill de Blasio as mayor of New York City may prefigure the start of a new swing of the national political pendulum as well. He won a resounding victory, in part by calling for a small rise in taxes to fund preschool education, a major reform that would help relieve the disadvantages faced by poorer children. The recent meeting of mayors at the White House may give a hint of possible local pressures for increased public investments and public services. We’ve been on a thirty-year course of diminished public investments in our future. The dismal results are plain to see. As the historian Arthur Schlesinger Jr. famously noted, we can observe cycles between private greed and public service at roughly thirty-year periods. Even though the new budget agreement looks like a new bipartisan consensus, I believe that it will be merely the lull before a far more decisive struggle to restore a forward-looking national strategy, and a budget to match.

http://www.nybooks.com/articles/archives/2014/feb/06/our-dangerous-budget-and-what-do-about-it/