Prevent an Economic Disaster

Posted: Sep 13, 2005 12:00 AM
The immediate, national outpouring of support for victims of Hurricane Katrina makes us proud of our nation and her compassionate citizens. But the rapid shock felt around the country at the gas pump accentuated our vulnerability to negative long-term economic effects, which Congress has yet to adequately address. Whereas Hurricane Katrina was an uncontrollable natural disaster, we can prevent an imminent economic disaster.

Even though the devastating impact was predicted days before Katrina hit land, some elected officials failed to act responsibly or quickly enough. That same lack of crisis leadership is apparent in Congress. For decades our elected officials have failed to prepare for the economic disaster posed by high energy prices, the income tax code mess, the dysfunctional Social Security structure, and runaway Medicare and Medicaid costs. Report after report has documented these coming economic disasters, but solving these problems has been constantly stalled by politics, partisanship and procrastination.

When the full impact of these economic disasters is felt, we will not be able to provide temporary relief with a few hundred truck loads of taxpayer dollars, or contributions from other countries. Temporary relief will require 100% of every dollar we make as workers and investors as our economy slowly drifts into the gulf of economic oblivion. That’s a crisis that too many politicians deny exists.

At a debate during my campaign for U.S. Senate, one of my opponents (a U.S. Congressman) stated that “Congress does not act until there is a crisis.” He was right, but if we wait until the full impact of these economic crises hits the U.S. economy and U.S. workers, it will be too late to act. Crisis leadership starts before the crisis, not after the crisis.

To avoid a future economic disaster we must first increase our domestic supply of oil. While many people agonize over the price of gasoline, there is little we can do to slow worldwide demand for oil. If we had acted strategically in the 1970s to lessen the burdens on oil companies seeking to construct new refineries and domestic sources of oil we would not face the energy price crisis as severely as we do today. The biggest lesson to be learned from Katrina in respect to the effect of a disaster on energy prices is that we must have adequate supplies available to replace the supplies lost in a disaster. To increase our domestic supply and lessen our dependence on foreign oil we must immediately begin to tap the known reserves in the Artic National Wildlife Refuge and accelerate exploration and drilling offshore.

Second, we must eliminate the income tax code and replace it with a national consumption tax, also known as the FairTax. The income tax code stifles innovation and the entrepreneurial spirit. It is unfair to all taxpayers, and contains too many disincentives to save and invest in our economy. The FairTax will provide the average worker a 30% increase in take home pay. It will eliminate corporate income taxes, which currently are simply passed on to the consumer in the form of higher retail prices. We can eliminate the imbedded taxes in gasoline and in all the new goods and services we purchase – which average 22% of the cost – by switching to a consumption tax.

Third, we must restructure the Social Security system. Under the current structure, benefits paid to retirees will exceed payroll taxes collected by 2017. Throughout the program’s 70-year history, Congress has pawned off its fiscal responsibility on future generations by raising taxes to cover the projected funding shortfalls. We must restructure the system so individual workers can grow their own retirement accounts and be allowed to pass the accounts on to their heirs. The current pay-as-you-go system will soon be bankrupt unless members of Congress abandon politics and design a retirement program for the 21st Century.

Fourth, our economic disaster plan must address the exploding cost of the Medicare and Medicaid programs. The General Accounting Office estimates that Medicare faces a $28 trillion shortfall in unfunded liabilities over the next 75 years. The cost of the newly enacted drug benefit, which begins next year, could cost an additional $1 to $2 trillion. The costly Medicaid program is rapidly crowding out other spending in nearly every state budget. Mandatory spending on federal entitlement programs such as Social Security, Medicare and Medicaid will soon exceed 60% of all federal budget outlays. That’s a crisis all by itself.

Health care costs are rising at an unsustainable rate because our federal and state governments have socialized the system. We can begin to reduce government interference in the health care system by moving to more individually-controlled health care plans. One example is health savings accounts (HSAs). Money contributed to HSAs can be used to pay for medical expenses today or saved to cover medical expenses in retirement, and the accounts grow over time due to the miracle of compound interest.

We have not built a new oil refinery in the U.S. in over 25 years. The income tax code was enacted in 1913, Social Security in 1935, and Medicare and Medicaid in 1965. It is no wonder the pillars of our economic infrastructure are crumbling. Our economy is operating under the heavy federal hand of a system designed nearly 100 years ago. It is wholly inadequate to meet the needs of the 21st Century, and we know it is headed for disaster unless changes are made now.

We can ensure our ability to quickly rebound from future disasters by enacting an economic disaster plan now. Increasing our domestic supply of oil and refining capacities, developing more fuel efficient vehicles, replacing the income tax code with the FairTax, restructuring Social Security and reducing government interference in health care will guarantee that our economy remains strong, even in our times of greatest tragedy.