Deficit Solution

Today, it's hard to remember that in 2000 the Congressional Budget Office was estimating a surplus of $1.9 trillion for the coming decade.  That was before Bush was "elected" by the US Supreme Court - which is to say before the Bush tax cuts and the ill-advised neocon wars added trillions to the deficit and before the karma from the conservative deregulation frenzy initated in the 1980's caught up with us in 2007 and we experienced the greatest financial crisis since the Depression.

It would seem that the right way to attack the budget deficit is to focus on what went wrong since 2000, on what is no longer relevant in a post-Cold War era  and on what we need to do to correct these errors. 

To start, no solution to the budget deficit will be possible without deep cuts in military spending.  Fifty three cents out of every Federal tax dollar goes to pay for past, current and potential future wars.  (Softbox Films put together an informative short piece on the breakdown of these expenditures on its YouTube channel.)   A few ideas: The action with the most immediate effect on the budget would be the removal of all US troops from Afghanistan.  Continued stationing of US forces in Europe at the current levels seems totally unnecessary.  Dismantling of the country's nuclear arms is long overdue.  And let's not forget about the other "toys" that the Pentagon continues to demand - serious consideration needs to be given to converting weapons factories to peace-time manufacturing.   Why the world's only remaining superpower needs a military budget more than six times that of China is beyond comprehension.  If we just reduced our military expenditures on a GDP basis to that of China, we could save $345 billion per year!

Secondly, John Boehner and Eric Cantor to the contrary, we cannot "cut" our way out of the deficit.  Revenues must be increased.  In a nation where 40 percent of the wealth is owned by 1% of the population, fairness and concern for the common good demands, at a minimum, an end to the Bush tax cuts for wealthy Americans or, even better, a return to the incremental tax rates in place during the administration of conservative icon Ronald Reagan.  Corporations are currently sitting on significant amounts of cash - the problem is not with business profitability but with a reduced demand from customers.  Fair taxation of corporations is also an important element.  A revised tax code that reduces loopholes and provides selective tax credits only when companies create domestic jobs would be a good start in this arena. Revenues from the "rest of us" will increase as soon as jobs are created and more people find work.  This cannot be done without additional stimulus spending that would be financed by the increased revenues from the wealthy and corporations. 

Finally, sound financial regulations implemented during the Depression kept us from severe recessions for more than a half-century.  These controls were gradually eroded, financial system complexity was increased, enforcement became more difficult, and greed and risk became accepted parts of the game.  Perhaps the action most responsible for the current Great Recession was the repeal of some of the provisions of the 1933 Glass-Steagall Act in 1999.  As the Wikipedia entry on Glass-Steagall succinctly states: "The repeal of provisions of the Glass–Steagall Act by the Gramm–Leach–Bliley Act in 1999 effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks. This repeal may have contributed to the severity of the Financial crisis of 2007–2011 by allowing banks to become so large, complex, and intertwined that both they and their regulators failed to see the systemic risk that a failure in one part of one bank could lead to cascading failures across the global financial system."

It's too late to reverse the impact of the Recession on the lives of so many millions.  But a little bit of old-fashioned root cause analysis can help us prevent this from happening again.  A reinstatement of Glass-Steagall would be an important step in that direction.