Editorial: We'll all need to pay to solve debt issues

  • Article by: EDITORIAL , Star Tribune Editorial Board
  • Updated: July 26, 2011 - 8:49 PM

Balance the budget and come to grips with lower expectations.

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A small group of college students who are Facebook friends make an appeal to President Obama and Congressional leaders meeting inside the White House to reach a compromise during negotiations on the debt limit crisis, in Washington, Saturday, July 23, 2011.

Photo: J. Scott Applewhite, Associated Press

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The debt-ceiling stalemate has put the nation's AAA credit rating at risk and has raised the specter of a global economic meltdown.

But it's becoming clearer by the day that even that may not be enough of a crisis to waken an ill-informed electorate to America's financial reality: Balancing the budget means we all need to pay more and expect less.

A new TV ad from AARP is just the latest symptom of the problem. A pugnacious older gent tells Congress to cut "waste and loopholes" -- not benefits for seniors. The ad plays directly to Americans' widespread budget misconceptions.

The reality is that programs serving seniors -- Social Security, Medicare and Medicaid (pays for most nursing home care) are some of the biggest items in the federal budget, meaning the budget woes can't be fixed if they're declared off-limits.

There is not nearly enough waste out there to address the basic problem: The rising cost of benefits is outstripping previous and current taxpayer contributions to these programs, or will do so in the not-too-distant future.

Medicare, Medicaid and a children's health insurance program consumed 21 percent of federal dollars spent in 2010, with almost two-thirds of that ($452 billion) going to Medicare. Social Security ate up another 20 percent, the same percentage as defense.

But a recent poll found that 63 percent of those surveyed incorrectly believed that the government spends more on defense and foreign aid than it does on Medicare and Social Security. Moreover, just 44 percent believe that Medicare and Social Security are a major source of trouble for the federal budget.

The problem with these budget illusions is that too many people are convinced the nation's books can be balanced without costing them a dime. Politicians too often get reelected by telling voters what they want to hear: Somebody else will feel the budget ax or foot the bill.

Democrats cater to this with calls to tax the rich (sorry, there aren't enough of them), while Republican all-cuts budget plans are based on the fallacy that someone else will feel the pain.

But the GOP wrings even more mileage out of this economic illiteracy. The party rails against taxes knowing that voters rely on gut feelings vs. research in deciding whether they're overtaxed.

A review of tax rate tables from the nonpartisan Tax Policy Center offers a perspective that's been missing in a debt-ceiling debate that's too often pitted a GOP all-spending-cuts plan against the Democrats' proposed mix of spending cuts and tax increases.

The center compared average income tax rates for four-person families at three income levels: half the median income, median income and twice the median income. Rates have declined sharply over the past 30 years for all income groups.

The rate for families with half the median income decreased by 218 percent (with refundable tax credits figured in). Average-income families saw their tax rates fall 60 percent. The rate for those making twice the median income declined by 34 percent. This is the crushing tax burden ailing America?

Democrats and Republicans need to get a debt ceiling deal done before Aug. 2 and tell the world we have our financial act together.

Still, even the doomed-but-headed-in-the-right-direction "grand bargain" plan calling for $4 trillion in cuts continued trafficking in Americans' illusions about what needs to be done. Entitlement cuts were sold as "reforms."

Tax increases were "revenue enhancements." The last-ditch plans now pitched by both parties are even murkier about the underlying problems.

America may still lose its vaunted credit rating even if an 11th-hour deal is passed.

It would be even more tragic if the nation went through this wrenching crisis without making any progress on what needs to be done: an honest assessment of spending and the shared sacrifices needed to put America's finances in order.

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