The Tribune Democrat, Johnstown, PA

January 8, 2012

William Lloyd | Eliminating federal deficit should be the real issue of ‘12 campaign

William R. Lloyd Jr.

Editor’s note: After an eight-year hiatus, former state Rep. William R. Lloyd Jr. of Somerset returns, writing an occasional column for The Tribune-Democrat. Since November 2003, he had served as Pennsylvania Small Business Advocate.



Republicans hope the 2012 election will be a referendum on President Obama. Democrats want it to be a referendum on the tea party. What the country really needs is a referendum on how to eliminate the federal deficit.

Candidates frequently claim that the deficit can be eliminated without much pain. 

“Just cut the waste, fraud and abuse and eliminate the special-interest tax breaks,” they say. 

Unfortunately, that rhetoric does not square with reality.

In President Clinton’s second term, the country enjoyed a surplus for the first time since 1970. That surplus was projected to last well into the future. As a result, the debate in the 1998 congressional campaign and in the 2000 presidential campaign was over what to do with the surplus. 

Suggestions included paying off the national debt, setting aside more funds to cover future Social Security and Medicare benefits, and cutting taxes.

What the country chose was to enact the Bush tax cuts and to create a prescription drug benefit for senior citizens. While the surplus might have been sufficient to cover those two initiatives, it could not also cover the cost of two wars and offset the decline in tax revenues caused by the onset of the recession. Consequently, the federal budget was about $500 billion in the red when President Bush left office.

The Republicans correctly point out that the deficit has ballooned under President Obama. However, according to the nonpartisan Congressional Budget Office, the weak economy is responsible for about one-third of the current deficit. Specifically, when unemployment is high, fewer Americans pay income, Social Security and Medicare taxes, and more Americans collect long-term unemployment benefits and rely on Medicaid for health care.   

Unfortunately, even if unemployment falls to its pre-recession level, the deficit will grow much larger in the future because of the rising costs of Medicare and Social Security.

As the baby boomers retire, fewer workers will be paying taxes into the Social Security Trust Fund, and more seniors will be drawing benefits. 

Without any changes in Social Security benefits or Social Security taxes, the trust fund should be able to pay 100 percent of the promised benefits for about 25 more years. From that point to the end of the century, the trust fund should be able to pay 75 percent to 80 percent of the promised benefits.    

The problem is that both Democratic and Republican presidents and Congresses used the Social Security Trust Fund to finance other federal programs. Consequently, delivering the promised Social Security benefits will require the government to cut other spending, raise taxes, or implement some combination of the two.

As with Social Security, the retirement of the baby boomers will also increase Medicare costs because more seniors will be drawing benefits.

In addition, Medicare costs will be driven even higher by the seemingly endless increases in the cost of health care. 

In view of the magnitude of the problem, eliminating the red ink will require hard choices.

About 70 percent of the federal budget is spent on Social Security, Medicare, Medicaid, interest on the debt and the Department of Defense. 

That means that even if every other federal program and every other federal agency were to be terminated, today’s deficit would be about $300 billion – without accounting for the long-term increase in the costs of Social Security and Medicare.

Furthermore, tax breaks are not enjoyed by only the rich and powerful. 

In fact, the biggest tax “loopholes” include exemptions for mortgage interest, state and local taxes, capital gains on the sale of homes, charitable contributions, employer-provided health insurance, and contributions to pension funds. Scaling back any of these exemptions would be a tax increase for many Americans.

In a debate last year, every Republican presidential candidate pledged to eliminate the red ink without increasing taxes. Although that pledge makes for a good campaign commercial, it is a guarantee of unpopular cuts.

Despite the rhetoric, there is no hiding the consequences. Balancing the budget without higher taxes would mean significant cuts in Social Security, Medicare, Medicaid or national defense – or, more likely, some combination of cuts in each of those categories. 

Voters who choose that option need to do so with their eyes open.



William R. Lloyd Jr. represented Somerset County in the state House of Representatives (1981-98) and served as the state’s Small Business Advocate (November 2003-October 2011). He is a resident of Somerset Borough.   

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