We have arrived at a point of choosing. Our national debt and massive deficits are forcing painful choices upon our nation. How we arrived at this unfortunate juncture is an interesting academic and political discussion, but it is largely irrelevant to the choices we make going forward. Pointing fingers and trying to assign blame isn’t going to move us toward a solution.
Some basic facts:
» Gross debt is $14.6 trillion ($14,600,000,000,000), $47,000 per person.
» Fiscal years 2009-2011 accumulated about $4.5 trillion in new debt.
» Unfunded liabilities for Social Security, Medicare and Medicaid are $60 trillion-plus.
» Medicare will be unable to meet its obligations by 2024.
» Social Security is already running in the red, years ahead of schedule.
» Medicaid severely burdens state budgets.
» The dollar is worth 50 percent less against gold than three years ago.
» We borrow more than 40 cents of every dollar we spend.
» Federal spending is about 37 percent higher than three years ago.
» Recession has reduced tax revenues by 10 percent.
The debt has become an existential threat to our nation. There is no plausible way to meet our current known entitlement liabilities and huge ongoing deficits compound the problem, which is fundamentally why our debt was downgraded by Standard & Poor’s.
The government’s attempts to borrow and spend our way to prosperity have failed and left us with a crushing debt burden and a weak economy. If government spending could drive growth and prosperity, we would never suffer a deep recession and we would be in robust recovery now.
Instead our economy continues to struggle and we endure 9 percent-plus unemployment and about a 17 percent underemployment rate nationally. Keynesian government-driven recovery spending didn’t work during the Great Depression, the Japanese Lost Decade and our own current economic stagnation. Three strikes and you’re out: it doesn’t work.
So, what are our options to change course and achieve fiscal sanity and economic growth?
We can print more money, as the Fed has been doing, but that just devalues our currency and acts as the most regressive tax of all: inflation. Printing more money doesn’t make it worth more. That is the stuff of Zimbabwe, which recently issued $100 trillion notes, which maybe purchase a basket of groceries. Bad idea.
Another option is to raise taxes to cover our shortfall. Many, including President Barack Obama and Rep. Lois Capps, D-Santa Barbara, have called for raising taxes on the “rich,” meaning couples making more than $250,000 per year. If the government confiscated every dollar in income in excess of $250,000, it still would not close our budget deficit. We can’t raise taxes enough to solve our budget problems, never mind the attendant economic damage.
In 2008, the top 1 percent of earners ($380,000 income) paid 38 percent of income taxes while earning 20 percent of the income. Fifty percent of filers paid no income taxes. According to the Organization for Economic Cooperation & Development, the top 10 percent ($114,000) pay a higher percentage of the income tax burden than any European country.
Increasing taxes on the “rich” will impede, not increase economic growth. Maybe Obama and Capps can explain how taking more money out of the private sector through taxation helps the private sector grow? No country has ever taxed its way to prosperity.
Economic growth and spending restraint are the least painful and most effective way to work our country out of this mess. Fortunately, they go hand in hand. In the 1990s, Canada faced a similar situation to ours. Despite having a fairly left-leaning government, Canada chose spending cuts and economic growth over tax increases and now it has growth, lower unemployment, a stronger dollar and a low public debt relative to the United States.
Left to its own devices the economy will grow. Businesses exist to conduct business. The sad reality of why we are not growing this economy is directly due to bad government policy.
The basic problem is that we have been growing the public sector at the expense of the private sector. Every dollar spent by government is a dollar not available for use elsewhere. There is a lesson here our policy makers need to digest: the bigger the government, the smaller the private sector.
In 2000, federal spending was 18.2 percent of gross domestic product. In 2007, it was 19.6 percnt. In the last three years it has averaged 24.4 percent of GDP. Tax revenues over the last 60 years have averaged 18 percent to 19 percent of GDP, regardless of tax rates. How’s that 24.4 percent of GDP spending working out for us?
Clearly our issue is spending. Even the spending “cuts” being discussed in the surreal world of Washington, D.C., aren’t cuts at all; they are simply relatively minor reductions in planned spending increases.
Out-of-control government spending and burdensome regulations have created a crisis of confidence and increasing costs of doing businesses in America. Regulatory compliance costs our economy $1.8 trillion per year. And our politicians wonder why businesses are not hiring.
Our wounds are self-inflicted — wounds we can heal fairly quickly if we return to the principles that made this country great in the first place: limited government and free enterprise. Only then can we unleash the power of our entrepreneurs to grow businesses and create jobs.
The cure is simple: put government spending on a path to 18 percent of GDP, reform entitlements, remove regulatory hurdles that make us uncompetitive and strangle growth, simplify our tax system to favor growth, and then stand back and watch the free-market magic happen. Growth will cure a lot of ills.
The path forward for a prosperous future is obvious; the question is can we muster the political will to change course? Or, will we be the first generation of Americans to leave our children a country in worse shape than we received it? We are stealing from our children and our grandchildren to fund our current spending ambitions. That is simply immoral.
As Thomas Jefferson warned 200 years ago, “The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
— Tom Watson is a Santa Barbara businessman and was the 2010 Republican nominee for the 23rd Congressional District seat.