The IOU for our fiscal insanity has arrived. The debt has grown another $6.5 trillion. It now exceeds $16 trillion; a total that is greater than the output of our entire economy. Within ten years, the United States will be spending more on interest payments on the national debt than on national defense. We must change course and begin a plan that reduces the debt and over time is aimed at eliminating it. It cannot happen overnight, but it can and must start now.
At the end of 2001 the total federal debt was $5.9 trillion with $3.4 trillion publically held and $2.5 trillion "borrowed" from the Social Security Trust Fund. That "borrowed" money has been spent and now that millions of baby boomers are set to retire, it will need to be repaid. Problematic, because as of today the total federal debt is $15.7 trillion, the publically held federal debt is $10.5 Trillion and the "borrowed" Social Security debt is $5.1 trillion.
It`s no longer "Bush`s fault." Even if the 2001 tax cuts are ended, it`s estimated that our total debt will grow by an average of more than $700 billion each year between now and 2021. The total federal debt will reach $26.3 trillion in 2021 and the publically held federal debt will reach $19.0 trillion.
Today, almost half of the publicly held federal debt is owned by foreign countries…and the country that owns the largest share is China. If we continue going down our current path, we will find ourselves at the mercy of foreign countries, with the very real possibility of driving our country to its knees and denying our children and our grandchildren the future we desire for them.
Put these concepts into real world terms. What would happen if your annual household income was $58,000 – the average in California – but you spent $90,600 a year? That`s what the federal government is doing. Not only this year, but last year and the year before.
On a per person basis, the federal debt has increased from almost $35,000 in 2009 to nearly $49,000 today, an increase of $14,000 in just three years. It is expected to continue to increase, without end, every year into the future and reach more than $85,000 in 2021 for every American man, woman, and child.
The budget deficit this year is so large that income taxes would have to be doubled just to balance this year`s budget. That`s not just the "1%" – that`s double the taxes for every working American. It is mathematically impossible to eliminate the national debt simply by raising taxes.
Simple economics tells us that there are only three ways to reduce federal debt: increase tax revenue, decrease the value of the debt by inflation, or reduce spending. The problem with increasing taxes is that it takes money out of the pockets of workers and job creators alike and at current debt levels it would still be insufficient. The problem with inflation is that it hurts those on fixed incomes and betrays those who saved and lived within their means. It also discourages future saving and investment.
The immediate answer is to reduce spending, now, today. We`re already past the breaking point.
So where do we start? We all know that there`s a tremendous amount of government waste. It`s an easy place to start and every politician has promised a top to bottom review of every agency and every program. They just never do it.
There is no shortage of ideas on where to make reductions. If you Google the phrase "how to cut the federal budget," you get 103,000,000 hits. The GAO has produced a report on dozens of duplicative federal programs and identified billions in improper federal payments. The problem is a lack of discipline and political will. The federal government operates more than 2,000 separate subsidy programs, a doubling of subsidy programs since the mid-1980s. In addition, duplicate programs, outdated programs and corporate welfare programs should be eliminated.
We also need to transform federal entitlement programs. The former head of the Medicare and Medicaid programs has stated that 20 to 30 percent of health spending is "waste" and that some of the needless spending is a result of regulations enforced by the government. In addition, Medicaid could be converted to a block grant just as the welfare program was successfully done by President Clinton in 1996.
We can also learn from other countries that have cut spending successfully. In the mid-1990`s, the total federal debt of Canada amounted to 67% of their economy. The Canadian government began a series of budget cuts and today their federal debt is 31% of their economy. In contrast, America`s publically held federal debt is 69% of our economy and it is projected to rise to 101% of our economy by 2021. When you count the debt "borrowed" from the Social Security Trust Fund, our debt is already larger than our entire economy.
However, cutting government spending will not conquer the debt alone. We need to jump start the economy and get more people back to work, which provides more positive revenue rather than forcing artificial revenues through higher taxes. In other words, we should grow the size of the pie instead of fighting over who gets what slices.
To get the economy growing again we must:
- Call a halt to the avalanche of regulations coming from Washington which cost businesses a total of $1.75 trillion a year.
- Recognize in law and regulation the central role of job creators.
- Tackle tax reform and enact a tax structure that is simpler and more predictable for individuals and makes American businesses competitive against overseas interests.
The national debt is so large that it will take years to reduce it to manageable levels and then years more to eventually eliminate it. Committing to practical, sensible debt management means setting spending priorities and sticking to them, addressing the unfunded future costs of our entitlement programs and reforming those programs as necessary, and most importantly, repealing the Obamacare fiasco that continues to increase its costs to the taxpayers and its burden on job creators.
America simply cannot replicate the fiscal nightmare that has hit European countries as Greece, Spain and Italy. We must stop the insanity.