Haven’t we forgotten something? Something big?
Like a federal debt of $18 trillion heading toward $20 trillion. President Obama called it “unpatriotic” when George W. Bush ran the debt from $5 trillion to $9 trillion. Now he too has doubled the debt, but in a shorter period and with a larger number. Wasn’t that the concern of the Tea Party movement? The problem is that the economy hasn’t grown rapidly enough to suck it up and it might never get to that point. And, as before, China remains the principal creditor. That was the “unpatriotic” part Obama was referring to.
Whomever or whatever you blame – Bush, Obama, wars, the economy, entitlements – it’s a problem. The principal problem being that interest rates are at a historic low and held there artificially. In prior years the rate on the much, much, lower debt has averaged 5.7%, according to Budgeting for National Priorities Project, a non-profit, non-partisan group that tracks federal spending. Today’s interest rate is 2.4%. Each% of increase costs $180,000,000,000 (billion) and we are borrowing twice that amount (the deficit) each year. That’s a negative compounding factor. Right now the interest eats up six% of the budget, but that could easily double.
The issue is what are we going to do about it? There’s not much wiggle room. Mandatory spending such as Social Security, the welfare net, medicare, food and agriculture support, transportation and veterans benefits take up 65% of the budget. Discretionary spending takes up only 29% and 55% of that is military.
It’s obvious that the military is a target and there’s always waste there. However, there’s always demand there, particularly now with the increased terror threat and with the fact that military requires excess funds to wage war. At the same time, there’s demand for increased spending on health care, welfare programs, and infrastructure.
On the revenue side, personal income taxes bring in $1.53 trillion, corporate $448 billion and excise taxes $50, social security and medicare, $1.12 trillion. In other words, we are projected to bring in $3.32 trillion in taxes, but spend $3.9 trillion. It’s all big, complicated math infused with political as well as real needs. Besides, whether we balance the budget ever (there’s no prediction of that happening), or start paying off the debt (fat chance), the issues go to taxation and who is paying their fair share.
For starters government can confiscate all the money from millionaires and still not make a dent. Paying fair share is the goal, but determining it is harder than just saying it. Making the more well-to- do pay more is a straightforward and popular move depending upon how well-to-do is defined. Broadening the base is important, but the moves now are toward narrowing the base (over 40% don’t pay any federal income tax) which is unsustainable. Cutting out tax “loopholes” is a no-brainer, but many of those “loopholes” were tax breaks designed to promote the better societal good – for instance, deductions on interest for home mortgage, or corporate giveaways to stimulate job creation.
It’s time for a lot of those to go. In fact, it’s time for a total tax overhaul, a start-over plan whether its a FairTax (consumption only tax) a flat tax, a more tailored and simpler version of what we have now. The Bowles/ Simpson plan, commissioned and then ignored by President Obama early in his administration, addressed some of the problems. And, because there are always two-sides to the ledger, we have to overhaul the spending side, too.
Is there a political will to do that?
Somethin’ on My Mind is an opinion column written by Bill Northrop. It does not necessarily reflect the opinions of Gabber publishers, staff or advertisers.