The irresponsible borrowers and lenders who sparked the current economic downturn have something in common with the federal government: None of them can be trusted with a buck. And all Americans will ultimately pay the price for their financial recklessness.
An estimate released Monday by the White House placed next year’s federal budget deficit at a record $482 billion. As a percentage of the economy, it’s still not as bad as the deficits from the 1980s and early 1990s, but that should comfort no one. Washington managed to climb out of that hole only after the government imposed a program of painful tax hikes, which combined with a fast-growing economy in the mid-1990s to produce federal surpluses in the closing years of the Clinton administration. That all ended with the election of George W. Bush.
The Bush administration tried to spin Monday’s grim budget news as fallout from the economic stimulus package approved by a bipartisan congressional majority in February. The $600-per-taxpayer rebate certainly didn’t help, costing the Treasury $168 billion, but it’s by no means the source of the deficit problem. That goes back several years -- to when Bush and a compliant Congress launched an invasion of Iraq costing hundreds of billions of dollars and, rather than raise taxes to pay for it, continued to cut them. The $482-billion figure actually understates the size of the shortfall because it doesn’t include $80 billion in war costs. Washington’s uncontrolled spending at the beginning of the decade made deficits almost inevitable, but the growth of the shortfall is being worsened by a troubled economy.
Americans’ willingness to accept the war was enhanced by the fact that so few were asked to sacrifice anything to fight it, but the sacrifice wasn’t avoided, only deferred. Excessive government debt is dangerous for the same reason that excessive personal debt is: An ever-increasing share of future budgets will be eaten up by interest payments, leaving less money for everything else, and when times get hard, the belt-tightening could become brutal.
The mortgage crisis taught financial institutions a tough lesson about undisciplined behavior, and the ones that survived are gradually putting their houses in order; we wish the same could be said for the government. Neither party’s presumed presidential nominee has a realistic plan to curb the deficit. That’s only to be expected during the campaign season, when vows of low taxes and rich entitlements are key to winning votes. The next president simply will not be able to deliver both, despite such claims.