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Saturday, January 01, 2011

America: A nation addicted to spending

Our government is sinking deeper into debt with every day that passes..interest on our national debt now accounts for approx. 11% of our entire annual budget and within two years, given the current budget deficits, our national debt will equal the total GDP output of the entire nation. For the most part, our elected Representatives are cowards, not willing to forgo money and power in exchange for what is best for our country. They are all addicted to spending.

This Fall, republicans won back a majority in the House of Representatives primarily because the average person understands that we cannot continue to spend 72% more than we take in,(and yes that is what happened in fiscal 2010!) sooner or later we will have to discipline ourselves and rein in excessive government spending and stop making future financial promises that are not sustainable over time- either that or the market will force us to make some very painful adjustments to our way of life- think Greece and Ireland!

Our President and congress need to start telling the American people the truth with perspicuity, but without term limitations that prospect seems rather is easy to appeal to the have-nots promising to re-distribute the nation's wealth and narrow the gap between the rich and the poor but this promise is a deceptive canard that cannot be accomplished without undercutting America's economic growth engine.

According to the OMB, in fiscal 2010 the budget deficit was $1.56T and the 2011 budget now before congress projects another $1.15T in deficit spending. So with all the noise about the budget deficit and the national debt, I decided to go see for myself. It is easy to do, just to to

Fixing the budget deficit is really rather simple to do, and probably to your surprise requires no spending cuts and no tax increases. It may not be easy but it is simple. How so, you say? Well, I did a little math to demonstrate how simple spending contraints would impact the budget deficit and our national debt. Politicians (both democratic and republican) all spin everything to their advantage, counting on people not to think for themselves.

From the US budget I simply took the projections for tax revenues for 2011 thru 2015 and held all government spending at current 2010 levels (you may be amazed to learn that total spending in 2010 was up over 2008 by 25%!). Simply freezing spending for the next five years will close the budget deficit almost entirely without cutting any one's expenses are increasing any one's taxes.
Years 2006 thru 2010 are actuals in table above.

All you need to do is freeze all spending, NOT CUT spending, just make the government live with its current spending levels. Congress and the President could move spending from one place to another but they could not exceed the overall spending cap. With this simple spending constraint in place, we can put the nation back on a path to economic health. Besides closing the budget deficit, a spending freeze also would remove the inevitable pressure to increase or create new taxes (like a national VAT tax).

Now some of you will say, well that's not fair because if you freeze spending, inflation is a just a spending cut in disguise. Okay fair enough, I will accept that argument and to the chagrin of my conservative friends I would propose to increase income taxes at the same rate of inflation, that way both those receiving entitlement benefits and those paying taxes would both be equally yoked. I added a column showing the impact of such additional taxes increases on the deficit. If we balanced the burden with inflation based tax increases, not only would we close the budget deficit in five years but we could also pay down our national debt by approx. $500b. I personally would be willing to pay more taxes if total government spending were to be frozen for the next five years!

We can do this, it is simple but it is not easy because as a nation, we are addicted to spending. Our politicians tell people they have a right to best health care available, a right to ever extended unemployment benefits whether they are looking for a job or not, a right to ever increasing social security benefits and the right's list go on....we are addicted to spending and this will not change substantially until we first enact term limitations on Congress and the Presidency.
The government could cut out enought waste to continue to fund new programs without exceeding the total spending cap. An excellent example of waste and downright stupidity is paying 100,000 teachers in NYC to stay home and do nothing because they have tenure and a union contract that says that don't have to take any new assignment or job offer in another location if they don't want to and they still get paid. Can our society really be that stupid?

And yes, I have heard the experience and leadership continuity argument but with a one term of eight years for the Presidency, staggered eight year terms for the Senate and staggered four year terms for the House, this arguments dissipates into "why I want to stay in power" not "why I should to stay in power". In my opinion, our nation's spending addiction will continue without term limitations.

ps. If you click on the table above, you will be able to read it clearly


Anonymous Tod Shuttleworth said...

Tom - I hate the thought of higher taxes, even though I understand why you are proposing. I believe, however, we need to find a way to stop doing things. SpaceX just built a space project for $800 million that NASA spent $10 billion. USPS is bankrupt while UPS makes money. The real problem is the government is doing things that it's not good at doing it. We need courage to STOP doing things like these examples.

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