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Heavy-Handed Politics

"€œGod willing, with the force of God behind it, we shall soon experience a world
without the United States and Zionism."€ -- Iran President Ahmadi-Nejad

Wednesday, September 10, 2008

Ten Myths About Budget Deficits and Debt

By Brian M. Riedl
Heritage Foundation

After three consecutive years of decline, this year's rising budget deficit has focused budget watchers on the issue of government debt. While the growing fed­eral debt is worrisome, the current public debate over government debt and deficits has fallen victim to pop­ular mythology and all-or-nothing rhetoric.

Vice President Dick Cheney is famously reported to have said that "deficits don't matter." On the other side, many deficit hawks give the impression that def­icits are the only thing that matters; that a budget's success or failure is wholly determined by whether it balances or not, and the actual tax and spending poli­cies are of secondary importance.

Reality is between these two extremes. On the one hand, government debt represents government's fail­ure to live within its means as well as a preference for dumping current costs into the laps of future genera­tions—with interest. This year alone, interest on the national debt (including all past deficits) will cost tax­payers $234 billion (8 percent of total spending).

On the other hand, modest government debt levels do not significantly raise interest rates or reduce eco­nomic growth. Specific tax and spending policies have a much greater impact on economic performance and social outcomes than whether or not the budget bal­ances. While paying the interest is burdensome, few would argue that the United States should not have gone into debt to fund its World War II engagement or past economic policies that made Americans signifi­cantly wealthier.

When properly measured, the federal govern­ment's debt burden is below the post-World War II average. It is currently lower than at any time during the 1990s, and is expected to remain roughly stable for the next few years under current policies. How­ever, unless Social Security, Medicare, and Medicaid are reformed, lawmakers risk allowing debt levels to increase to the point of economic calamity—and the highest intergenerational tax increase in history.
Go here to see what the 10 myths are.


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