Academic journal article ABA Banking Journal

U.S. Budget Deficit Must Shrink

Academic journal article ABA Banking Journal

U.S. Budget Deficit Must Shrink

Article excerpt

Both Republicans and Democrats appear to agree that the U.S. has a problem with its federal budget deficit. That said, there seems to be little consensus on how the deficit should actually be reined in:

Most Republicans still seem to believe that tax cuts pay for themselves.

Most Democrats still seem to think that tax hikes are the only way to rein in deficits.

Reality is somewhere in the middle, with a combination of tax hikes and spending cuts, phased in over time.

The tax code needs to be reformed. Tax rates need to be lowered, while behavior-distorting deductions are eliminated. Does it really make sense to subsidize million dollar mortgages and second homes when we can't afford social security, let alone health care for retirees? We seem to be closer to reforming corporate taxes; companies and the government are having a hard time justifying the number of tax breaks we offer firms to book profits and hire people abroad, instead of at home.


Spending needs to be cut. Everything should be up for review, including entitlements. The good news is that we do seem to be getting some movement on non-critical defense outlays and agricultural subsidies; it's hard to justify spending on duplicative government bureaucracies and subsidies for agricultural products with price hovering near record highs. No one seems ready, however, to tackle the entitlement problem which accounts for the overwhelming majority of the rise in spending. …

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