The Federal Government’s debt is huge and growing. This is by far the most serious problem facing our country. Quite simply, it is going to kill America.
I have been playing Jeremiah about this for decades - long before Glenn Beck and the Tea Party coopted the issue. (See for example my piece, “The Federal Debt,” January 21, 1984 in my Politically Incorrect Sociology anthology at But who listens? The facts are clear:
1.The accumulated federal debt is now $13.5 trillion, i.e 90% of our GDP.
2. It is growing by over $1 trillion per year, which is nearly 10% of our GDP, and it is predicted to grow forever.
3. The government spends nearly 10% ($300 billion) to finance its debt. This will soon be a lot more, because (a) interest rates are currently abnormally low and (b) the debt is growing. In time, the entire budget could consist of interest payment. Would that be ridiculous or what?
It’s exactly like when you overuse your credit card and let the debt accumulate, instead of paying it off: You are in a vicious cycle and pretty soon, you spend most of your money on finance charges instead of groceries. You are getting poorer every month.
We hear a lot about Europe these days, which is said to be in fiscal trouble as well. Greece’s annual government deficit is 12.5% of its GDP. The morons on the right immediately interpret this as the consequence of too much European-style socialism. They don’t understand that Greece may be a sick baby, but that Greece is not Europe. The problem is not Socialism, it’s Greece. Greece has bad socialism. Germany has good socialism.
And we shouldn’t even point the finger at Greece. Greece may be sick, but so are we: Its deficit is 12.5% of GDP - barely worse than ours, which is 10%. Overall, Europe is in better shape than we are: At least it requires that no country’s annual deficit should exceed 3% of GDP. The continent has its weaklings, but it also has the strength of Germany, France, the Benelux, Scandinavia and others. Its financial future looks better than ours. We shouldn’t worry about descending to their level. We should worry about descending to the level of South American banana republics.
The unfathomable idiocy of Congress is that both Republicans and Democrats are committed to the final destruction of the country through terminal indebtedness. The Glenn Becks and John McCains of the world want to continue to reduce taxes, while the Democrats want the government to spend more than it collects.
The pundits predict only two scenarios: (1) default, and (2) inflate out of the debt. Both scenarios mean that we are on our way to becoming like Argentina, Brazil, Venezuela and the rest of South America. A third scenario - growing out of the debt - is a chimera.
I have a better solution - the bitter pill which every private household has to swallow when it goes cold turkey and kicks the heroin-like addiction of over-borrowing: Temporarily Consume less and pay back your debt by setting aside more for that purpose:
The fed government rakes in $2.5 trillion in taxes per year. It achieves this by collecting about 17% of the population’s money. (Personal income taxes and Social Security taxes make up 80% of this, Corporate taxes only 13%).
If federal receipts were to rise by 80%, this would generate a surplus of 1 trillion per year. This amount would be sufficient to wipe out the entire deficit in 12 years. After that, taxes could be reduced enormously. There would be no further need for the annual $1 trillion surplus, and neither would the government have to burn up hundreds of billions of dollars every year to finance its debt.
The government’s budget would be balanced, smaller, and yet able to provide more services than ever before.
There are many forms of taxation through which federal receipts can be increased - income tax, VAT, sales tax, corporate tax, etc. This can easily be worked out. And of course, the enormous but temporary tax increase should be graduated. No one living on, say, under 25K a year should pay taxes, multi-millionaires’ taxes should rise by more than 80%, etc.
There are over 25 million households in the US that make more than 100K per year. And of course smaller numbers with much higher incomes. The taxes of all households making over 100K could increase by at least 80%, while those of much higher earners could be increased even more. The overall outcome would be an increase of federal tax receipts to 31% of GDP. The overall tax burden of Americans would then be comparable to that of the Europeans. Meanwhile - and this is essential - the government’s expenses should be frozen at current levels.
Nothing short of such a drastic measure will save the country.
To save the country and my grand-children’s world, I am prepared to pay 80% more in taxes than I pay now, for a decade or so, as long as you do, too. I won’t go to Europe and to Hawaii anymore. Maybe my wife and I can even live with just one car.
The federal deficit problem is not insurmountable. Our government still ran a surplus as recently as during the Clinton years. Then, the Bush administration screwed up everything - cutting taxes for the rich and waging unfunded wars. After that, the Great Recession caused by that administration required President Obama’ stimulus, another big expense.
Were we to implement my proposal, we could go back to living the way we did in the 1950s, within a few years. The withdrawal pains from addiction would be temporary. The alternative is Armageddon.
I know what you’ll say: Nothing like this will ever happen. I agree. Do you also agree with me, therefore, that America as we know it, will soon self-destruct? leave comment here
5 comments:
Wow Tom, your proposals make a lot of sense. I think you should forward "The Debt: Armageddon to President Obama. Do you think he'll listen?
That would be nice. But unfortunately, the world is not guided by simplicity, clarity and common sense.
Tom, You are right that the main problem is lack of self-discipline to balance a budget. I also believe it is immoral for a government to borrow money except in war.
The EU suffers what the US has had for a long time. Our Federal government uses debt financing like a ponzi scheme. Everyone believes a larger government will be able to bail out the smaller ones. Now the EU feels it should go to the IMF. Where will the IMF go to get money, the moon?
As long as we were willing to believe the politicians, who only care about 4 years at a time, they were willing to tell us lies to get our votes, let the future be damned.
BTW, I don't know why you feel it is bad that the Tea Party people finally started complaining about it. Just because you said it much earlier, doesn't make them wrong to finally see the problem.
While we're on the subject...
Slate.com has an article making some similar points, but without any real suggestions.
Interesting,the chattering classes keep repeating their warnings that the house is on fire, but very few are actually suggesting any action to put out the fire.
It almost starts sounding like that old nihilistic chant, "Burn, Baby, Burn".
Gordon,
thanks for your valuable comments.
Right. Better late than never - i.e. the Tea Party's belated awareness of the debt problem. It's good that millions of people are now fretting about this.
But the political fight is about the cure, not the diagnosis. To simplify, there are 2 possibilities: (1) raise revenue, (2) cut spending. This is the choice facing ALL governments - the Fed, California, Sacramento,etc.
As a European-style social-democrat, I am amazed at the near-total consensus in this country that choice #2 is the only way to go. I am convinced that only a combination of the two can solve the problem.
Post a Comment
Please limit your comment to 300 words at the most!