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US Financial Concerns Recede as Economy Improves

  • VOA News

Just weeks ago, the political focus in Washington was on reaching a "grand bargain" on taxes and spending to cut the country's burgeoning debt, but now a string of events seems to have pushed the issue into the background.

The U.S. government's debt is nearing $17 trillion, as its annual budget deficit topped $1 trillion each of the last four years. That prompted U.S. President Barack Obama and his key congressional opponents to start talks about curbing the deficit, reforming spending plans for popular government pension and health care plans for older Americans and altering the country's complex tax laws.

But such talks have been halted, and part of the reason is that the U.S. economy seems to be on the upswing, and as a result government tax collections are increasing. A key congressional budget agency says the government budget deficit will shrink to $642 billion this year, the smallest in five years, and continue to fall in the next two years.

The senior economist at one the country's biggest banks, James Glassman at JPMorgan Chase, told VOA that actions by Congress contributed to the country's revived outlook.

“They allowed the social security payroll taxes to go back up a couple percentage points," said Glassman. "You’ve got sequestration, which is kind of holding government spending, not cutting government spending, but holding it down. And meanwhile the economy is recovering, and so the deficit has been coming down.”

Patrick Socci, dean of the Hofstra University business school in New York, told VOA that while the country's economic fortunes improved, Congress diverted its attention from spending and debt concerns to investigate how the country's tax agency, the Internal Revenue Service, targeted conservative groups for extra scrutiny as they sought tax-exempt status.

“The bandwidth [attention span] of the American public, I think, is relatively limited. And now you have the IRS scandal. And that I think occupied everybody’s bandwidth," said Socci. "And so they’re concentrating on that and it impinges on the discussion of a balanced budget or attempting to move in the direction of closing the deficit because here you have the arm of the government that collects taxes being significantly compromised by these alleged scandals that have taken place.”

Some Washington leaders originally thought Congress would have to increase the country's borrowing limit in the next few weeks. But Socci said that with the improving economic fortunes, that has been pushed off for months.

“I think the debt ceiling they thought originally would have to been resolved sometime around now, and now they don’t think that they have to touch the debt ceiling for at least another six months, which in political terms is an eternity," said Socci.

But Glassman sees trouble ahead for the government if it fails to rein in rapidly increasing spending for a popular program covering health care expenses for older Americans.

“The problem is when you look out over the horizon, the longer-term picture is not so great," said Glassman. "Federal spending for health is growing steadily, has been for a long time, and the Congressional Budget Office tells us eventually, if we don’t do anything, today’s cyclical deficit may go away, but that then we’ll start to see the deficit growing again. And that’s really the issue that should have been addressed.”

But he said that as the government deficit retreats, "everybody is sort of losing interest" in acting now. Glassman said Washington's leaders "tend not to deal with issues unless they are staring us in the face."