In most dysfunctional relationships, it's not just one side that makes unreasonable demands and generates turmoil. It's both.
[See how to survive tax hikes and spending cuts.]
Unfortunately, that's the dynamic between voters and the politicians they elect to represent them in Washington. The brinksmanship over shutting down the government, choking off its funding, and suddenly shuttering longstanding programs is a national embarrassment that's putting the worst of America's character on worldwide display. Balancing the federal budget and paying down the national debt are big challenges, but there are plenty of rational ways to institute disciplined reforms that would ultimately strengthen the nation and make most Americans better off. But the politicians in Washington don't seem interested in reason. What we've gotten instead is a free-for-all reminiscent of a post-Thanksgiving doorbuster mob, with people so desperate to lay their hands on cheap merchandise that they're willing to trample their fellow shoppers to get to it.
Voters, however, are guilty too. Politicians love to wax obsequious about the "wisdom of the American people," but voters tend to elect people who tell them what they want to hear, not what they need to hear. That's expediency, not wisdom. As a result, the proposals for balancing the federal budget that we've gotten so far avoid asking mainstream voting blocs to make any major sacrifices. President Obama wants to raise taxes, but only on the wealthy—not on the untouchable middle class. House Republicans, led by Wisconsin Rep. Paul Ryan, want to pare back Medicare and Social Security—but only on future retirees, not on current ones. The whole political game is an effort to put the financial burden on the backs of an amorphous group of future taxpayers who won't threaten any politician's reelection over the next two years.
[See 4 draconian ways to fix Washington.]
Voters are increasingly aware of the seriousness of the debt problem. But only 13 percent of Americans think it's the nation's top problem. More than four times as many people say the lack of jobs or a weak economy are the top concerns. And while a lot of people favor "small government" in general, they tend to be blissfully unaware of how it would affect their lives in particular if the government were to shrink dramatically. That could change if politicians begin to "educate" voters about the stark choices they face. But it's also possible that endless political bickering over the budget will make voters more cynical and confused than ever, which would be too bad, because there's a lot that voters need to know. Here are four reasons why people aren't ready yet for the sacrifices that tackling the debt will entail:
Most voters like full-service government. There's a huge disconnect between the general desire for smaller government and the types of government services people want to preserve for themselves. In a recent Pew Research poll, for example, 61 percent of respondents favored cuts in domestic spending. But 65 percent opposed cuts in Social Security and Medicare, which are the two biggest domestic programs. So a lot of people want to both cut government and preserve it, simultaneously. That's like facing ruinous household spending that's 30 or 40 percent over budget, then looking over your expenses and finding not a single thing you're willing to cut. Doing nothing might be an option for a while, but sooner or later your creditors will stop lending to you, since Ponzi schemes don't work if you're simply borrowing indefinitely from your own future earnings (not even for the U.S. government).
The best illustration of voters' self-contradictory attitudes toward government may be in California, where the state faces a nearly $27 billion budget shortfall that seems certain to require steep cuts in popular services like subsidized daycare, anti-drug programs, and education funding. But voters also refuse to consider changes to Proposition 13, which keeps California's property taxes among the lowest in the nation, even though the cost of living is high in most parts of the state. The inevitable result is an erosion in the services the state provides. Twenty years ago, for example, students in the University of California system paid only 13 percent of the cost of a college education. Today they pay about 41 percent, with the state's portion falling sharply over time. That's the kind of tradeoff voters will have to get used to at the national level, too.
[See why baby boomers are bummed out.]
Tax hikes are coming. Any politician who says otherwise is lying, and instead of hoping it doesn't happen, Americans would be smart to start planning for the day when the government delivers fewer benefits and takes a bigger bite out of your paycheck. Virtually every serious budget expert says it will take a blend of spending cuts and tax increases to fix America's finances, and the effects of that seem likely to degrade living standards for many Americans. One bipartisan report on the budget, drafted by Alice Rivlin and Pete Domenici, estimated that new taxes would reduce the typical American's disposable income by about 4 percent. So if your family earned $50,000 after taxes, your tax bill would go up by about $2,000 per year. The Rivlin-Domenici plan would cut spending too, and reform the tax code so that it's simpler and more fair. That kind of measured pain is probably much better than what would happen if a genuine debt crisis forced abrupt austerity measures. But either way, there is no escaping the math: Taxes. Must. Rise.
Both parties are still in denial, however, which means politicians aren't telling voters what's in store for them. President Obama is comfortable proposing higher taxes on the wealthy, but there aren't nearly enough rich people in America to fund all the revenue the government needs to pay back the money it's borrowed over the last decade. Paul Ryan wants to cut taxes and rely solely on spending cuts, but his rosy projections about how this will balance the budget hew to no known form of credible economic forecasting. Both sides are stalling on this bit of inconvenient news until after the 2012 elections—or even longer, if global investors seem willing to keep lending Uncle Sam money and putting off the inevitable day of reckoning.
[See how life would change under the GOP budget.]
Americans don't save enough. One reason tax increases and spending cuts will seem so tough, especially to middle-class voters, is that Americans save precious little and don't have enough of a cushion to start with. Economists have cheered lately as the savings rate has risen from a low near zero, in 2005, to about 6 percent today. That's a meaningful improvement, but the savings rate is still below historical post-war levels, which typically ranged from 8 to 11 percent during most of the 1960s, '70s, and '80s. And that was at a time when the government was generally shouldering more of the burden for retiree healthcare and assistance to the needy, not less.
Now, just as Americans are paying down their own historically high debt levels, the government is going to come along and snatch some of that additional savings in the form of higher taxes, while also reducing benefits. The pain could come in the form of stiffer income taxes, fewer deductions, higher gas taxes, a new national sales tax, or some other levy, but however it comes, it's going to stress household finances for millions. No wonder nobody wants to mention it. But if you lived on a flood plain, would you be better off watching a fabricated weather forecast that always called for sun? Or a more realistic one that let you know when the rain was coming?
[See how to tell when the debt crisis gets serious.]
Retirement is already a disappointment. Perhaps half of all baby boomers lack the savings to finance a comfortable retirement, which means some will work longer, while others will have no choice but to accept lower living standards once they quit working. And that's at current levels of Social Security and Medicare spending. Most budget experts think modest changes to Social Security—such as a quicker rise in the official retirement age—will be needed to keep that important program solvent. Medicare is more deeply in the red, which makes it likely that seniors will have to bear more of their own healthcare costs in the future.
Ryan's plan, as one example, would cap healthcare subsidies for seniors at a fixed level, with any expense beyond that being the patient's responsibility. But Ryan's plan defers the pain, since it wouldn't begin to affect retirees until 2022. That in itself has drawn criticism, because it would penalize tomorrow's retirees while exempting today's. As Ryan surely knows, however, many baby boomers are already facing a diminished retirement, and cutbacks that make it even worse won't be popular, even among the stoutest advocates of smaller government. So voters are likely to hear what they want to hear for a little while longer.
Twitter: @rickjnewman
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mlbex of CA 12:14PM April 22, 2011
dw of TX 11:04AM April 13, 2011
Viola Perry of TX 7:15AM April 13, 2011