Who’s Really to Blame for the Country’s Growing Deficit?

More people than ever rely on some form of government benefits.

By Seth Freed Wessler Sep 16, 2010

As the recession was beginning almost three years ago, nearly half of all Americans lived in households that relied on some form of government benefits. There has never before been a time when government programs reached so many. The Wall Street Journal reports that in 2008, 44 percent of homes were occupied by someone receiving social security, subsidized housing, unemployment insurance or other federal benefits. Those numbers have grown even larger as the downturn rolls on.

The result, reports Sara Murray at the the Wall Street Journal, is that the deficit will just keep growing. But figuring out exactly what that means depends entirely on how much you’re willing to look into the past. In this case, the blame for our rising national deficit is being parceled out to no and low income folks, while the real culprits are let off the hook entirely. 

Murray’s argument rests on the claim that the deficit is being made worse by a slew of Americans who simply aren’t making money, or are finding too many breaks. She notes that forty five percent of Americans effectively pay no federal income taxes, either because their incomes are too low, or because they qualify for so many deductions that the matter becomes a moot point.

Yet for all the interesting numbers and stories — the article is sprinkled with tales of people who never expected to need the safety net — Murray somehow entirely misses the real story on the deficit. Mostly, that it hasn’t grown over the last decade because of increased participation in the safety net, or because low-income people receive tax credits. The deficit grew mostly as a result of tax cuts for a very different group of people: the very rich. The Bush tax cuts were the single largest contributor to the pre-recession deficit, while much of the rest came from the country’s two wars.

Murray gets right to quoting one of the architects of the Bush economic Policy:

We have a very large share of the American population that is getting checks from the government," says Keith Hennessey, an economic adviser to President George W. Bush and now a fellow at the conservative Hoover Institution, "and an increasingly smaller portion of the population that’s paying for it.

Then, later in the piece, we’re offered a "widely seen" moment:

Cutting spending on these "entitlements" is widely seen as an inevitable ingredient in any credible deficit-reduction program. Yet despite occasional bouts of belt-tightening in Washington and bursts of discussion about restraining big government, the trend toward more Americans receiving government benefits of one sort or another has continued for more than 70 years–and shows no sign of abating.

Of course, lots of people would love to see that growth abated and they’re trying hard to make that happen. Deficit hawks in Congress and in conservative think tanks are targeting Social Security, unemployment insurance and other benefits. And programs that received a jolt from the Recovery Act are also coming under attack. Last month, the food stamp benefit increase built into the Stimulus was suddenly slashed, and Congress has yet to extend a subsidized jobs program funded through the Temporary Aid for Needy Families Program.

Murray does note that "cutting federal benefits while the economy is still weak would be a mistake, some analysts say, because it could hinder recover by giving consumers less money to spend." Indeed every dollar in food stamps given to families generates almost twice that much in market activity. And the collateral economic impact of cutting social security or children health benefits, for example, would be huge, especially on families.

For this reason, and because there’s little else to lean on, Americans don’t want their vital safety net programs cut. But Murray thinks the slashing is inevitable. And to make her case, she offers up the examples of the rightward drifts of several European countries:

In recent months, political leaders in Europe have struggled to convince voters that change is necessary. German Chancellor Angela Merkel has exempted pensions from her government’s planned budget cuts, reflecting the growing power of the retiree vote. French President Nicolas Sarkozy is facing mass protests, including a national strike week, as he tries to raise France’s minimum retirement age from 60 to 62. Greece’s government had to face down demonstrations this year when it slashed pension benefits, as it was forced to do to get bailout money from other European countries and the International Monetary Fund.

Still, Europe does offer examples that change is possible. Germany slashed benefits for the long-term unemployed in 2004, a step that analysts credit with prompting more Germans to get jobs as well as improving the country’s budget balance. Cuts to entitlements are politically possible, says Daniel Gros, director of the Center for European Policy Studies, a nonpartisan think tank in Brussels, "but societies need some time to get used to the idea.

Of course, residents of many European countries, including France and Germany, receive three times more government assistance per capita than Americans. This is much less a "country of entitlements," but what’s really important is that we maintain the few that we’ve got left.