Four Spending Myths That Could Wreck Our World

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This post originally appeared on TomDispatch

We’re at the
edge of the cliff of deficit disaster! National security spending is being, or
will soon be, slashed to the bone! Obamacare will sink the ship of state!

Each of these
claims has grabbed national attention in a big way, sucking up years’ worth of
precious airtime. That’s a serious bummer, since each of them is a spending
myth of the first order. Let’s pop them, one by one, and move on to the truly
urgent business of a nation that is indeed on the edge.

Spending Myth 1:Today’s deficits have taken us to a historically
unprecedented, economically catastrophic place

This myth has
had the effect of binding the hands of elected officials and policymakers at
every level of government. It has also emboldened those who claim that we must
cut government spending as quickly, as radically, as deeply as possible.

In fact, we’ve
been here before. In 2009, the federal budget deficit was a whopping 10.1% of
the American economy and back in 1943, in the midst of World War II, it was
three times that — 30.3%. This fiscal year the deficit will total around 7.6%.
Yes, that is big. But in the Congressional Budget Office’s grimmest projections, that figure will fall to 6.3% next
year, and 5.8% in fiscal 2014. In 1983, under President Reagan, the deficit hit
6% of the economy, and by 1998, that had turned into a
surplus. So, while projected deficits remain large, they’re neither
historically unprecedented, nor insurmountable.

More important
still, the size of the deficit is no sign that lawmakers should make immediate
deep cuts in spending. In fact, history tells us that such reductions are
guaranteed to harm, if not cripple, an economy still teetering at the edge of

A number of
leading economists are now busy explaining why the deficit this year actually ought to be a
lot larger, not smaller; why there should be more government spending,
including aid to state and local governments, which would create new jobs and
prevent layoffs in areas like education and law enforcement. Such efforts,
working in tandem with slow but positive job growth in the private sector,
might indeed mean genuine recovery. Government budget cuts, on the other hand,
offset private-sector gains with the huge and depressing effect of public-sector layoffs, and have
damaging ripple effects on the rest of the economy as well.

When the economy is healthier, a host of promising options are at hand for
lawmakers who want to narrow the gap between spending and tax revenue. For
example, loopholes and deductions in the tax code that hand enormous subsidies
to wealthy Americans and corporations will cost the Treasury around $1.3 trillion in lost revenue this year alone — more, that
is, than the entire budget deficit. Closing some of them would make great
strides toward significant deficit reductions.

Alarmingly, the
deficit-reduction fever that’s resulted from this first spending myth has led
many Americans to throw their support behind de-investment in domestic
priorities like education, research, and infrastructure — cuts that threaten to undo
generations of progress. This is in part the result of myth number two.

Myth 2:
Military and other national security spending have already taken their
lumps and future budget-cutting efforts will have to take aim at domestic

The very idea
that military spending has already been deeply cut in service to deficit reduction is not only
false, but in the realm of fantasy. The real story: despite headlines about
“slashed” Pentagon spending and “doomsday” plans for more, no actual cuts to
the defense budget have yet taken place. In fact, since 2001, to quote former Defense
Secretary Robert M. Gates, defense spending has grown like a “gusher.” The
Department of Defense base budget nearly
in the space of a decade. Now, the Pentagon is likely to face an
exceedingly modest 2.5% budget cut in fiscal 2013, “paring” its budget down to
a mere $525 billion — with possible additional cuts shaving off
another $55 billion next year if Congress allows the Budget
Control Act
, a.k.a. “sequestration,” to take effect.

But don’t hold
your breath waiting for that to happen. It’s likely that lawmakers will, at the
last moment, come to an agreement to cancel those extra cuts. In other words,
the notion that our military, which has been experiencing financial boom times
even in tough times, has felt significant deficit-slashing pain — or has even
been cut at all — is the Pentagon equivalent of a unicorn.

What this does
mean, however, is that lawmakers heading down the budget-cutting path can find
plenty of savings in the enormous defense and national security budgets. Moreover,
cuts there would be less harmful to the economy than reductions in domestic

A group of
military budget experts, for example, found
that cutting many costly and obsolete weapons programs could save billions of
dollars each year, and investing that money in domestic priorities like
education and health care would spur the economy. That’s because those sectors
create more jobs per dollar than military programs do. And that
leads us to myth three.

Myth 3:
Government health-insurance programs are more costly than private

False claims
about the higher cost of government health programs have led many people to
demand that health-care solutions come from the private sector. Advocates of
this have been much aided by the complexity of sorting out health costs, which
has provided the necessary smoke and mirrors to camouflage this whopping lie.

Health spending
is indeed growing faster than any other part of the federal budget.
It’s gone from a measly 7% in 1976 to nearly a quarter today — and that’s
truly a cause for concern. But health care costs, public and private, have been
on the rise across the developed world for decades. And cost growth in
government programs like Medicare has actually been slower than in private health insurance. That’s because the
federal government has important advantages over private insurance companies
when it comes to health care. For example, as a huge player in the health-care
market, the federal government has been successful at negotiating lower prices
than small private insurers can. And that helps us de-bunk myth number four.

Myth 4:
The Affordable Care Act — Obamacare — will bankrupt the federal
government while levying the biggest tax in U.S. history

Wrong again.
According to the Congressional Budget Office, this health-reform legislation
will reduce budget deficits by $119 billion between now and 2019. And only around 1% of American households will end up paying a penalty for
lacking health insurance.

While the
Affordable Care Act is hardly a panacea for the many problems in U.S. health
care, it does at least start to address the pressing issue of rising costs —
and it incorporates some of the best wisdom on how to do so. Health-policy
experts have explored phasing out the fee-for-service payment system — in
which doctors are paid for each test and procedure they perform — in favor of
something akin to pay-for-performance. This transition would reward medical
professionals for delivering more effective, coordinated, and efficient care —
and save a lot of money by reducing waste.

The Affordable
Care Act begins implementing
such changes in the Medicare program, and it explores other important
cost-containment measures. In other words, it lays the groundwork for
potentially far deeper budgetary savings
down the road.

Having cleared
the landscape of four stubborn spending myths, it should be easier to see
straight to the stuff that really matters. Financial hardship facing millions
of Americans ought to be our top concern. Between 2007 and 2010, the median
family lost nearly 40% of its net worth. Neither steep deficits, nor
disagreement over military spending and health reform should eclipse this as
our most pressing challenge.

If lawmakers
skipped the myth-making and began putting America’s resources into a series
of domestic investments that would spur the economy now, their acts would yield
dividends for years to come. That means pushing education and job training,
plus a host of job-creation measures, to the top of the priority list, and
setting aside initiatives based on fear and fantasy.

Kramer, a
TomDispatch regular, is senior research
analyst at the
Priorities Project
and lead author of the new book A People’s Guide to the Federal Budget.

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Copyright 2012
Mattea Kramer

Image by Brendan C,
licensed under Creative

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