Debt and Taxes

In 2010 our government spent about 3.7 trillion dollars.  That’s about $120,000 per second – 24 hours a day, 7 days a week, 365 days a year.  At that rate, the average taxpayer only funds our government for a fraction of a second each year.  That’s a lot of money, but as long as it matches up with what is coming in, then it’s not a problem, right?  The sad fact is that we are borrowing about 1.5 trillion dollars a year to fund all of our spending or about 40% of our total spending.  Now, that’s a problem.  And, unfortunately, trillion dollar deficits are the plan for the next 10 years when our total debt will be over $23 Trillion.  Just servicing that debt will become a huge problem, especially if interest rates go up. 

If common sense didn’t convince you that we have a deficit spending problem then, hopefully, the recent downgrade of the US financial outlook by Standard and Poor’s did.  Our current debt of $14.3 trillion represents about 90 percent of our GDP (Gross Domestic Product) and ranks us 8^th in the world in that measure.  By the way, this is a measure where you don’t want to be number one.  For perspective, Greece is ranked number 3 and Portugal is number 5.  So, do we have a spending problem or a revenue problem?  I would say the true answer is – yes!  So, what does a balanced plan look like to address this issue?

First, we all need to understand that revenues are at the lowest level as a percent of GDP in the last 50 years.  We currently pull in 15 percent of GDP in federal income taxes while we normally collect 17 to 18 percent.  There are at least three things reducing revenue today.  First, unemployment both reduces income from potential taxpayers and sucks money from the treasury in the form of unemployment payments.  Next, our tax system is broken when manufacturing giants like General Electric (GE) can make 14 billion dollars in profit and pay no taxes in the US, and Warren Buffet pays a lower tax rate than his secretary.  Finally, 50 percent of Americans pay no federal income taxes.  While most of these people can’t afford to pay huge dollars to the government, I believe that no one should have a completely free ride for living in this great country

So how should we increase revenues considering the above causes?  First, President Obama needs to put together a more business-friendly administration.  Especially now, we need to be removing barriers to business growth instead of piling thousands of pages of new regulations onto our job creators.  The US Chamber of Commerce pointed out that the new financial laws have spawned over 500 new rules and the healthcare reforms will create 159 new agencies, commissions and panels which would add thousands of dollars per worker in administrative costs to employers and drive jobs overseas.

Next, tax reform would stop subsidizing companies like GE and properly tax millionaires and billionaires like Warren Buffet and bring in billions of dollars without raising tax rates on the already overburdened middle class.  Finally, I would be in favor of a small but broad federal sales tax.  Each 1% sales tax would bring in almost $50 billion in revenue and would force everyone to contribute to the solution.

Now, what about spending cuts?  Virtually everyone agrees that there are 100’s of billions of dollars of excess, redundancy and waste in our government’s discretionary spending which accounts for about 15 percent of our total. The Department of education, for example started in 1979 with a budget of $14 billion and 450 people.  In 2012 it is projected to cost $77 billion and employ 5,000 people.  This would be fine if it was working, but in 1979, average SAT scores in the US were 1038 and in 2005 (when the two tiered scoring stopped) they were 1028.  Every program and agency needs to prove its benefit or be eliminated.

Finally, we need to pull our heads out of the sand on Medicare, Medicaid and Social Security.  All of these programs are facing demographic realities that just won’t allow them to be solvent in the near future.  In 1950, for example, there were 16 people paying in to Social Security for every one person receiving benefits.  In 2005 that ratio was approaching 3 to 1 and by 2031 it will be practically 2 to 1.  Anyone who is saying we should not touch these two entitlement programs is just pandering for votes.