On Sept. 30, the federal government will end its fiscal year with a deficit — the excess of spending over revenues — of a near-record $407 billion. The all time record was $413 billion in 2004.
This year’s deficit is double last year’s and the news only gets worse. The Congressional Budget Office projects the deficit for the fiscal year starting Oct. 1 at $438 billion but the head of the CBO says the deficit will likely be over $500 billion, perhaps as high as $540 billion. It certainly will reach that if Congress goes ahead with a second stimulus package and its annual pullback of the Alternative Minimum Tax.
These deficits are financed by borrowing from anybody who will lend us money, including — maybe even especially — foreign governments and sovereign wealth funds.
This issue should be front and center for Republican John McCain and Democrat Barack Obama because those deficits are the black hole down which their campaign promises could disappear. And those promises are generous.
McCain proposes broad tax cuts — making the 2001 tax cuts permanent, abolishing the AMT, cutting corporate taxes and raising the dependent child deduction. Obama is slightly more selective but he would keep the tax cuts for those earning less than $250,000 and eliminate the income tax for many seniors.
In health care, Obama is the more expansive, promising universal health care coverage and subsidies to lower out-of-pocket medical costs. McCain would offer a refundable tax credit for the purchase of health insurance. It goes on.
Both would increase military spending.
On the spending side, McCain would eliminate all earmarks, freeze discretionary spending — that is, funding for most of the government — for a year and end wasteful spending. Obama would save money by ending the Iraq war and he too would cut earmarks and wasteful spending. It’s not enough.
The nonpartisan eyeshades at the Committee for a Responsible Budget totaled up the spending, tax cuts and savings in the two candidates’ platforms and added them to the CBO’s optimistic projection of a $147 billion deficit in 2013.
Olbama would increase that year’s deficit by $286 billion to $413 billion and McCain by between $167 billion and $259 billion to a total deficit of between $314 billion and $406 billion.
Maybe the two campaigns could drop for a moment the topic of Sarah Palin to answer a simple question: How can we afford all this? Who’s going to pay for it? Hint: The central bank of China is the wrong answer.