In 2001 the Congressional Budget Office, the independent budget office for Congress, forecast that existing federal budget surpluses would create a projected surplus of $2.3 trillion over the ten years to 2011. Currently a $1.6 trillion dollar budget deficit is forecast for 2011 alone. In 2001 the CBO forecast we could use those projected surpluses to pay off the nation’s debts by 2011. In 2011 we have no plan to pay off $10 trillion in debt. We need to know where the money went so we can get serious about deficit reduction.

The PEW Foundation’s Fiscal Analysis Initiative concluded more than half of the money disappeared with Bush tax cuts. Another twenty-five percent went toward wars and Obama’s stimulus.

The 2001 tax breaks were sold on fiscal policy faith that cutting the wealthy’s taxes would increase investments in jobs, leading to higher tax revenue. Reagan began that policy, Bush promoted it and Rep Ryan repeats it. Don’t believe it.

                 Both David A. Stockman, Reagan’s budget director, and Joseph Stiglitz, a Pulitzer Prize winning economist, say the “Trickle Down Theory” didn’t work. Jobs weren’t created and current tax revenue plunged to the smallest percent of our economy in 60 years.

                 Instead the policy enabled the wealthy to speculate in financial markets with low interest rates and keep profits with low capital gains taxes. They increased their assets and annual income.

                 The policy slammed the middle class. They found fewer jobs and watched their assets and income stagnate or decline. Undaunted, they kept spending and loaded up on consumer and home debt, which transferred their wealth to financial speculators.

                 Consequently middle and lower income groups confront limited opportunities. They head for retirement with smaller savings and lower home equities. Rep. Ryan’s budget plan would increase their Medicare costs dramatically. Younger generations struggle with debt and unemployment. Sadly, promises of lower income taxes could give them false hopes.   

                Obama’s deficits plan taxes only the rich to repair the policy driven divide. Stockman and others point out social security reform requires tax increases and the proposal is too optimistic about Medicare and Medicaid savings. But Obama promised not to tax middle and lower incomes and backtracking on no-tax promises has been politically fatal.

                Both sides promise to dialogue. But a principle-driven, inaccurate exchange of rich-versus-poor clichés might delay action until after 2012, with each party hoping for total power. Our problem would be worse and neither party may win a majority.

                External forces may not permit waiting that long. Interest costs may go up to attract buyers if central banks buy less debt. The central bank of Japan must rebuild earthquake-damaged infrastructure. China must control inflationary pressures. The fed plans to stop buying bonds to keep interest rates low.

Other financial organizations are increasing pressure. Pimco, a premier bond investment fund, is investing to drive rates up. Standard & Poors said if Congress doesn’t get serious in two years, it might cut the debt rating. If Standard & Poors, or other rating agencies are serious, they should act now. Then Congress and Obama would get serious. 

The Council for Economic Development, a nonpartisan policy research group of business and university leaders, said the fiasco of almost shutting down the federal government over a pittance of budget cuts was a charade they called, “the definition of non-seriousness.” The Council recommended all sides put everything on the table. 

Other organizations need to increase the pressure, such as the US Chamber of Commerce and National Association of Manufacturers. They have clout – their organizations enjoy a trillion dollars worth of tax credits and exemptions that need serious review. 

So ignore idealistic budget debates, watch for increases in treasury rates and urge organizations to increase pressure. A solution must be found, sooner rather than later.