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A COLUMN BY MICHAEL HICKS

Next budget debate will force U.S. to face hard facts

Tuesday, January 22, 2013 - 12:01 am

We appear to be headed for a government shutdown as our leaders in Washington, D.C., find themselves at an impasse on the largest question facing the nation – how to cut spending. It might be useful to understand what this is all about and what it might mean.

As a gentle reminder, it is the U.S. Congress that authorizes taxes and spending. Beginning in the Wilson Administration, Congress set a debt ceiling, ironically to permit more flexible spending during World War I. That limit is raised routinely to accommodate spending growth between budgets. The problem today is that we have not had a new federal budget since April 2009. Each year, the deficit increases by a trillion dollars or so, and Congressional Republicans rightly look to the debt ceiling as a tool for forcing a budget negotiation.

However, the president does not want to negotiate on the debt ceiling. Having dispatched the fiscal cliff with a tax increase sufficient to slow the economy, without the mollifying benefit of the much needed structural changes, he isolated future talks to budget cuts. This now begins to look like a mistake, since the transparency of a genuine budget debate will reveal just how unsustainable our spending has become. False metaphors and demagoguery obscure this reality, which is why we have lots of name calling and no real budget debate.

Despite the enormity of our annual deficit, it is not the size that is the real problem; it is how we have been spending that really endangers us. Scrutinizing the composition of this federal budget will be an uncomfortable affair. Had we spent wantonly on a few durable things, the past four years without a budget might be forgiven. But much spending growth has gone to programs that remove the incentives that encourage economic growth. The automatic spending increases have largely gone toward income support for those who are not working, toward a huge expansion of social programs, toward a dubious set of business giveaways and toward defense spending growth. Only the latter represents even a small potential investment in our future, but I'd bet against it.

What a budget debate will clarify are two angry facts. First, we are not really investing in a future. Our budget is one of maintaining current consumption, not readying ourselves for a difficult future. Second, the level of taxes Americans now pay cannot support this. The Jan. 1 deal only closed 5 percent of the deficit. If we are to have a bigger government, the middle class best prepare for a huge tax increase.

I think all of this a sign of faltering leadership by the president. This might make me appear partisan, so don't take my word on the matter. U.S. Sen. Barack Obama himself opined on the matter on the senate floor in 2006: “Mr. President, I rise today to talk about America's debt problem. The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. government can't pay its own bills.”

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University.