Just to put this in layman's terms, a deficit occurs when you project to spend more money than you expect to bring in. If I need to pay $1,000 in rent next month and I expect to earn $700 next month, then I have a $300 budget deficit. In order to spend more than you bring in you have to borrow money, that borrowed money is your debt. For the rent example, I would need to take on a debt of $300 to meet my budgetary requirements. As long as you can borrow money and afford to pay the interest that accrues then you can continue to operate with a budget deficit as the United States does. However, this is not a practice that can continue indefinitely. As our debt continues to rise and our projected deficits remain high, lenders begin to question whether they will ever be paid back. Therefore, they increase the interest we are required to pay on our debts and become less willing to lend more money.So, what do we do? If we really wish to get the deficit under control then the simple answer is to increase revenue and decrease spending. Extending the Bush tax cuts as Senator Kyl and the GOP leadership wish to do would clearly decrease revenue. Someone with the priority of cutting the deficit and not worried about reelection (like Alan Greenspan) would oppose the extension of these tax cuts. Similarly, someone very serious about controlling the deficit would look to cut spending. The recent expansion of healthcare by the Democrats will assuredly increase spending on Medicare and Medicaid which already represent around 20% of the federal budget. The point here is that neither side can legitimately claim that they are really trying to aggressively reduce the deficit. Republicans want lower taxes, but refuse to give an inch on defense spending. Democrats are willing to enact higher taxes, but they also want to expand more services (e.g. Medicare, Medicaid, Social Security, etc.).
We can't abandon all spending and we can't solve the deficit problem with taxation alone. What we can do is allow the Bush tax cuts to expire recognizing that an increase in revenue will help to alleviate our deficit. We can also reduce spending in certain areas, while still providing services that keep the quality of life at a level to be expected in the richest country in the world. We need to continue to increase the age at which people become eligible for Social Security and Medicare, recognizing that the average lifespan has increased dramatically since the inception of these programs. We need to dramatically reduce our military spending. Our country faces a much greater threat from fiscal crises than from military crises, and our status as global hegemon will assuredly be jeopardized by the former before the latter. We must resist embroiling ourselves in long-term military commitments unless they are fundamental to the security of the United States. Invading Iran, North Korea, Yemen, or Somalia should not be on anyone's calendar. Spending billions on the F-35 Joint Strike Fighter and a ballistic missile defense program that may or may not ever become operationally effective is exactly the type of defense spending that can afford to be cut without sacrificing our military supremacy.
Then again, an inverse of this strategy may work just as well. Run the deficit as high as you want, and when China and Japan threaten to increase interest rates or cut-off lending we can just send over F-35 Joint Strike Fighters to bomb them and activate our high-tech ballistic missile defenses in case they try to retaliate militarily. I'm sure as long as "Jersey Shore" and "Grey's Anatomy" are on, most Americans won't care either way. Nonetheless, that's The Situation.
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So we can't have more services and fewer taxes?
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