Here is the conundrum. Americans want lower taxes, the same level of government services (Social Security, Medicare), and an elimination of the national debt. We are continually told by all politicians that this is possible and that they can magically fix these problems. Both parties are disingenuous and will tell you that one solution will fix all of our budgetary woes. The Democratic solution is to raise taxes and have no cuts to federal spending. The Republican answer is to lower tax rates and cut federal spending. Both of these so called “solutions” are no solution whatsoever. Basically we want to have our cake and eat it too!
Look at the results of the last few presidents. It has not mattered if the President was a Republican or a Democrat. They all added to the deficit. The irony is that Republican presidents have actually reigned over the largest deficit increases. Ronald Reagan led the biggest percentage increase in the national debt and Bill Clinton presided over the smallest increase in the national debt. Every president talks about decreasing the national debt but they all end up adding to it.
|Presidents||Years||Starting Debt||Ending Debt||Percentage Increase|
|Ronald Reagan||1981-1989||$908 billion||$2.6 trillion||+186%|
|George H.W. Bush||1989-1993||$2.6 trillion||$4.2 trillion||+ 62%|
|Bill Clinton||1993-2001||$4.2 trillion||$5.7 trillion||+ 36%|
|George W. Bush||2001-2009||$5.7 trillion||$10.6 trillion||+ 86%|
|Barack Obama||2009 -||$10.6 trillion||?|
If we are finally serious about eliminating our $13.728 trillion deficit, here are 3 things that we can do.
1. Increase tax receipts.
Taxes may not be popular but the only way to start paying down the debt is through increased tax receipts. I am not going to suggest the form of taxation that is needed to pay down the debt but the federal government has to increase its tax revenue. It can be through a consumption tax, income tax or valued added tax. The government could seek to collect some form of taxes from the 47% of Americans that do not pay any taxes. Whether it is corporations or individuals, someone is going to have to pay taxes.
2. Cut federal spending.
Entitlement programs will have to be cut. No one wants to see cuts in national defense, medicare, or social security but something has to be done. Either the age to be eligible for Social Security benefits has to be raised or the amount of money paid into it has to be increased. Also, the defense budget has to be cut. We spend more money on defense than any other country. The 2011 defense budget proposal is for $708 billion dollars and many lawmakers believe that is too low. We are fast approaching a $1 trillion dollar defense budget.
3. Increase GDP.
Many supply side economists like Larry Kudlow argue that the United States economy needs to focus on growing its GDP. I agree with this concept but not as the lone solution. Increasing our gross domestic product will help lower it from its current high percentage to GDP. The national debt currently represents approximately 20% of our 14.6 billion dollar annual GDP. GDP increased 2% last quarter. Any recovery in global economies should help boost United States GDP growth and a return to the days of GDP growth in the high single digits would be optimal.
Basically, I am saying that all options have to be on the table if we are serious about reducing the national debt. It is going to take a long term commitment and sacrifice to reduce the debt. In my opinion it will take a hybrid approach to get the national debt under control. In the short term, we can start by balancing the budget and not adding one cent more to the long term deficit. Next, the focus should turn to reducing the issuance of public debt (Treasury bonds, T-bills, notes). The day is coming when all debt instruments will be redeemed and have to be paid by the government. The final strategy would be increase the federal revenue stream so that the debt can be brought down to more manageable levels. This does not solve all of the budgetary woes but it is a good place to start.