How to Cut the Federal Deficit

by Fred Siegmund

I clipped a news article way back on August 11, 2005 when the Associated Press reported President Bush’s comments on a new transportation-spending bill.

According to the article, “President Bush calls the massive $286.4 billion transportation spending bill he signed into law Wednesday a job creator.”

The article goes on to describe the bill that will pay for 6,000 favored projects in the districts of nearly every member of Congress. Even though the legislation is $30 billion more than the President recommended, he is quoted as “proud to sign it.”

Remember, too, that 2005 was a year when the government reported a Federal deficit of $418.3 billion.

We have to admire President Bush’s candor in this matter because few politicians are prepared to emphasize that transportation projects are for creating jobs instead of transportation.

Isn’t this President Obama’s Plan, Too?

The effort of President Bush to create jobs sounds very nearly the same as President Obama’s economic stimulus plan.

If President Bush recognized the job creating potential of government spending, shouldn’t politicians all around the country recognize these same intentions in the Obama stimulus plan?

The current worries about the growing Federal deficit could make us forget that deficits are part of government spending. The deficit in 2008 jumped to $933.6 billion, which was part of the $5.025 trillion of Federal expenditures.

Eliminating $933.6 billion of deficit-funded Federal Expenditures will eliminate $933.6 billion pumped into the spending stream; spending that both President Bush and President Obama agree helps to create jobs.

If America has less government spending, then private sector spending will have to make up the difference. The country needs more spending to create jobs, but we are a country with nearly 10 percent unemployment, and 43 million jobs paying less than $25,000 a year.(1)

Income Inequality, But Not Tax Inequality

We are also a country with a growing inequality of income where entertainers, sports figures and corporate chiefs are paid tens of millions of dollars. Recently, NBC announced they’d be paying Conan O’Brien nearly $33 million dollar to leave his job.

If that $33 million was divided into $50,000 pieces, it would be help 660 families.

Those 660 families might buy 660 cell phones, but we have to doubt Mr. O’Brien will buy that many cell phones.

Those 660 families might go to restaurants a couple of times a month. That would be 15,840 (2x12x660) restaurant meals a year, but we have to doubt Mr. O’Brien will eat out that much or create many restaurant jobs.

Maybe those 660 families will go to the movies twice a month, and so on?

Working Americans have wages too low and taxes too high to keep us employed with their spending, but the wealthy are not making up the difference in spending or in taxes.

If the politicians want to lower the deficit and create jobs in combination, they will have to lower taxes on working Americans and raise taxes on the Conan O’Brien’s of the country.

It no longer matters who thinks it fair or unfair. When it comes to jobs and deficits, distribution matters.

(1) Occupational Employment Survey, U.S. Bureau of Labor Statistics

About the author: Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

{ 3 comments… read them below or add one }

MLR February 5, 2010 at 10:52 am

I think you make a lot of great points.

However, one thing I would be careful about is comparing government spending regardless of circumstance. Government spending during an economic expansion can lead to a crowding-out effect. Government spending during an economic contraction can actually lead to a crowding-in effect.

And, of course, there is always the most basic economic formula to remember.

GDP = C + I + G + (X-M)
GDP = Consumption + Investments + Government Spending + Trade Deficit (Exports – Imports)

So during an economic expansion, consumption (consumer spending on household goods and services) increases and investment (business spending on capital goods and services) increases. That being the case, an increased government spending can lead to more inefficient spending than the market would normally dictate.

Now, the economy starts contracting. C & I are obviously going to go down. We can sit by idly and watch as GDP goes down or we can increase government spending to stabilize the economy.

It’s the bathtub effect — and an effort to smooth it.

Jason Schoenbrun February 6, 2010 at 10:47 pm

This is ridiculous. First, the goal is not to create jobs. It’s to create value. Jobs often do that, but suppose we paid 100 people to stand on their head for 8 hours a day. Are we really doing a good thing? No, we need jobs that create value, and free enterprise is in the best position to determine what the best jobs are for creating value.

Second, are you a socialist? The wealthy need more taxes? Already, our tax system is inequitable. A fair share is by definition a percentage. If the rich paid 20% of their income to taxes and the working class paid 20% of their income to taxes, that is by definition fair. The working class making $100,000 paying $20,000 is less than but proportionally equivalent to the $1,000,000 earners paying $200,000. Proportionality is inherently fair.

Already, the rich are taxed a higher percentage, which is simply wrong. As if their earning more gives us a right to take a higher percentage of their money because “they won’t miss it as much”. That is patently inequitable – and don’t accuse me of self-serving bias, because I speak as working class making below both examples.

Fair does matter, because we are a moral country. Of course, we get away with taxing the rich a higher proportion because the government that steals from Paul to pay John can always count on the support of John.

Now, to move away from fair to practical. When we deplete the meritocracy that makes us so great, we alienate those who the markets have determined create incredible value (the highest earners who earn what you probably consider obscene or ridiculously high earners). Remember – they worked hard for that money, and free markets determined what they do is of such high value. If we steal from their earnings, we deplete the meritocracy, which hurts their feeling that they will get to make as much as they work towards in this land of opportunity. In this global economy, such people will take their earnings (read: value) elsewhere if we take advantage of them like you propose.

It is absurd to even entertain the thought of Conan O’Brien buying anyone a cell phone.

(plural of Conan O’Brien is Conan O’Briens, not Conan O’Brien’s)

Scott Bourquin February 9, 2010 at 12:07 pm

This is a very interesting take on Government Spending, while completely sidestepping the primary issues.

1. Government spends more than it makes
2. Government does not spend efficiently or effectively.
3. When did the purpose of government suddenly become “create jobs”?

I didn’t read that any where in the constitution, and during the creation of the country, the wisdom was simple, people are responsible to help the government. JFK was probably the last politician to say it out loud when he said “Ask not what your country can do for you, Ask what you can do for your country”. That wasn’t a job interview question folks.

President Kennedy then ended the speech with “My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man”, he didn’t say “free ride for man” did he?

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