Reducing the Deficit

The outcome of a federal budget deficit is a rising national debt. By some estimates, the American public debt may reach 190% of GDP by 2035 (Matthews and Driver 106). Such a huge national debt leads to rising interest rates, which discourages private investment in the US, perhaps displacing it overseas. This will slow growth in employment, creating fewer jobs (Matthews and Driver 108). The experiences of Greece and Ireland, and their investor flight corresponding to interest rate increases, is illustrative (Matthews and Driver 108). The excessive deficits are, therefore, clearly a concern, even if the economic effects are not currently occurring. Additionally, interest payments consume a share of income, making resources unavailable and perhaps creating even more debt (Chernew, Baicker and Hsu 1166). The only way to combat the rising federal debt is to deal with structural deficits, or a “persistent imbalance between revenues and expenditures” (Chernew et al., 1166). The best remedy for the persistent imbalance between revenue and expenditures must be to increase revenue and decrease expenditures; to put it concretely, the solution to the deficit is to combine spending cuts to government programs with increased taxation (Matthews and Driver 111).

While this is clearly the only reasonable way to reduce the debt overload, it is not politically expedient. Republicans are very leery when it comes to any discussion about raising taxes and Democrats strongly dislike any proposal to decrease entitlements. Certain social programs, like Medicare, have been awarded a sacred status so they appear to be impossible to cut. But anyone who has ever balanced a budget for their household knows that everything can be cut, anything that appears impossible to cut should be the first thing under serious review.

In summation, if the goal was to cater to the needs of both parties in remedying the debt issue, one politically viable way of increasing revenue could be to cap tax expenditures, or to change the qualities of income tax law that create subsidies for particular behaviors (Feldstein 1). This would not burden any individual group of taxpayers and does not sound like “bad” as raising taxes politically. Meanwhile, it could reduce the deficit considerably (Feldstein 2). Strategies like this, in combination with cutting inefficiencies in entitlements, are key to long term national economic health.

Works Cited

Chernew, Michael E, Katherine Baicker, and John Hsu. "The Specter of Financial Armageddon—Health Care and Federal Debt in the United States." New England Journal of Medicine 362.13 (2010): 1166-68. Print.

Feldstein, Martin. "How to Cut the Deficit without Raising Taxes." Washington Post (2010). Print.

Matthews, Warren, and Robert Driver. "Managing Federal Debt: A Two Phased Approach." Journal of Management 14.1 (2013): 105. Print.