Mountains of federal debt and a sluggish economy will be major issues for Ohio’s next U.S. Senator and the two candidates so far have have offered bite-sized ideas that might make a dent in the deficit.
U.S. Sen. Sherrod Brown or his challenger state Treasurer Josh Mandel will face these daunting numbers if elected:
* The U.S. government is expected to run a deficit this year that will exceed $1 trillion. The publicly held debt of the United States has climbed to $11 trillion, about half of which is held by foreign investors, such as China and Japan.
* Federal spending on Medicare, which pays for health coverage for seniors, is projected to nearly double from $560 billion this year to $1 trillion in 2022. By 2022, Washington will spend almost as much on the entitlement programs of Social Security, Medicare and Medicaid as it spends today for the entire federal budget.
To complete the dismal picture, at the end of the year – unless the president and Congress act — every one of the 2001 and 2003 tax cuts on income, business investments and married couples will expire while billions of spending reductions will automatically go into effect. The non-partisan Congressional Budget predicts that such a heavy blend of tax increases and spending cuts will tip the nation back into an economic recession.
The economic train wreck looming end of the year has prompted large companies in the United States to scale back plans to expand. The New York Times last week quoted Sandy Cutler, the chief executive officer of Eaton in Cleveland, as saying we are “in economic purgatory,’’ adding that there is little question “the economy is starting to see an impact from the fiscal cliff.’’
This alarming prospect – mountains of federal debt and a sluggish economy – is taking place as voters decide whether to give Brown, D-Ohio, another six-year term or turn instead to his Republican challenger Mandel.
As with health care, energy and the environment, the two are deeply divided about the budget and taxes. Mandel is opposed to allowing any of the 2001 and 2003 tax cuts to expire at the end of the year while Brown wants to extend the tax cuts only for families earning less than $250,000 a year.
Like President Barack Obama, Republican presidential nominee Mitt Romney and scores of other candidates across the country, neither Brown nor Mandel has unveiled a plan that would eliminate the deficit at any time during the next decade.
“There are a lot of retired members of Congress who are quite forthright on the subject,’’ said Robert Bixby, executive director of the Concord Coalition, a non-partisan organization in Washington that backs efforts to reduce the deficit. “But the sad truth is fiscal responsibility and campaign rhetoric are often at odds.’’
Edward Hill, a professor of economics at Cleveland State University, said that “we have to have a political system that’s smart enough and nimble enough to execute a 180 and that conversation is not taking place. The 180 is we need additional stimulus right now to prevent a second dip (recession), but we also have to have a long-term plan to reduce the deficit. And everybody has to pay.’
“It is absolutely clear to me that there has to be burden sharing across the entire population and that we can’t cut our way out of this mess,’’ Hill said.
For Brown, deficit reduction begins with the 2001 and 2003 tax cuts. “We let expire tax cuts on people making above $250,000,’’ Brown said in an interview in his Senate office. “We keep the other ones until the economy starts growing faster.’’
Because Brown’s statement appeared to leave the door open to raising taxes in the future on middle income Americans, Brown spokeswoman Meghan Dubyak said that “in order to reduce the deficit, Senator Brown supports asking the wealthiest 2 percent of Americans to pay the same taxes they did during the Clinton years, when our economy added 22 million jobs and when we turned a record deficit into a record surplus. During these tough economic times, however, he does not believe the middle class should return to those tax rates.’’
But Brown made clear that taxes on the wealthy are only the first step in reducing the deficit. He said “there are a number of things we ought to be doing and it’s got to be more comprehensive than anybody has looked at.’’
In particular, Brown said a “starting point’’ could be the recommendations in 2010 by a presidential deficit commission chaired by former White House chief of staff Erskine Bowles and former Republican Sen. Alan Simpson of Wyoming. Eleven of the 18 members on the panel proposed reducing the deficit by $4 trillion during the next decade through budget cuts, reforming the tax code to make it simpler while ending scores of tax deductions, raising the retirement age for Social Security, and raising gasoline taxes.
“There are things in it I don’t like, so I don’t resoundingly endorse it,’’ Brown said of the commission’s report. “But I think it should be the starting point for a discussion. There are lots of inequities if you will, or loopholes, in the tax code or things that we do to make major budget cuts.’’
Brown, however, appeared to rule out reducing the rate of growth in Medicare, saying that the 2010 health law signed by Obama will lead to “a lot of cost savings.’’
And he has consistently opposed raising the retirement age for Social Security. Instead, he wants Congress to levy payroll taxes on wealthier people. Under current law, an individual only pays Social Security taxes on the first $110,000 of their taxable income.
Mandel wants to extend the 2001 and 2003 tax cuts, saying that “we have to take a multi-pronged approach. That makes economic growth our top priority. We can’t balance the budget through budget cuts alone and we can’t tax our way to prosperity.’’
He likes to say that “we need to look at defense spending,’’ which he said is “something you will be surprised to hear from a Republican.’’ But he said “we can make common sense cuts on the defense side in order to protect Medicare and Social Security in the future.’’
In particular, Mandel argued that “our troops are mis-deployed in Europe and Asia. We are no longer fighting the Nazis or the Japanese and it makes no sense that we have all these large installations in Germany, Italy and Japan while the real enemy is radical Islam. As a United States senator, I will call for a top-to-bottom review of military installations throughout the world.’’
In addition, Mandel backs what he calls “bold and common sense tax reform,’’ which he said can boost the national economy and increase tax receipts to the federal government.
He said that “rather than trying to grow the federal government, my mission in Washington will be to create an environment to grow the private sector. When approximately half of the American citizenry doesn’t pay (income) taxes and large multi-national corporations can file 50,000 pages of returns to not pay taxes, our system is broken.’’
Yet analysts suggest that neither candidate has outlined an approach that does more than dent the deficit. Even if Congress eliminated the entire Department of Defense, the government would still run a large deficit this year.
And while Mandel wants to extend the 2001 and 2003 tax cuts, the CBO has calculated that even if all those tax cuts for all Americans expire, the federal government will still add $3 trillion to the publicly held debt during the next decade.
“If you take revenues off the table, the level of spending cuts would obviously be quite dramatic – much more dramatic than people realize,’’ Bixby said. But Bixby also pointed out that unless lawmakers restrain the growth in Social Security, Medicare and Medicaid, it will be nearly impossible to balance the budget.
“It makes sense to raise revenues on those who can most afford it,’’ Bixby said. “But the real growth in the budget is the entitlement programs. These programs are already over 40 percent of the budget. We can’t kid ourselves that taxing the rich is going to offset that problem.’’