Amid all the debate, confusion, obfuscation, lies and lack of candor about how to deal with our out-of-control federal budget crisis, one simple, rarely cited fact stands out from all the rest:
Our federal government borrows and spends roughly 70% more money than it takes in!
If the average American household with an income of $50,000 were somehow able to do the same thing, they’d be borrowing $35,000 a year and spending $85,000. In 14 years their debt would be up to $500,000, and at the historical interest rate of 5%, they’d be paying out $25,000 annually in interest, or 50% of their total income. Obviously it would not have been long before they went belly-up.
Hopefully, this little explanation will help folks to better comprehend the outrageous and shameful fiscal insanity and chicanery that is being selfishly foisted on us by Congress and the President. Here’s how bad it is:
Even in the highly unlikely event that today’s nearly $3.7 trillion federal budget (with some $2.2 trillion in revenues and a $1.5 trillion deficit) was balanced by the end of the next 10 years, today’s $14.3 trillion debt would have mushroomed to nearly 22 trillion – an additional $7.6 trillion, or over a 50% increase. Again, at an historical interest rate of 5%—the actual rate could be much higher (interest exceeded 18% under Carter), the interest on the then total national debt would be $1.1 trillion.
Even assuming an optimistic 3% annual increase in GDP, the $1.1 trillion in interest would equate to 35% of the then $3.1 trillion in revenues in 10 years. Just the interest, at 5%, on the added $7.6 trillion in debt would equate to over half of today’s cost of social security and two-thirds of Medicare’s.
And the longer we defer balancing the budget, the greater and more damaging will be the interest we’ll have to pay on the ever-spiraling debt. Taking 20 years to balance the budget, as even some Republicans are talking about, would increase the debt another $7.6 trillion to a staggering total of almost $30 trillion. Already Obama’s $4.1 billion average daily increase in the national debt is 2.5 times greater than what Bush ran up and 7.5 times greater than did Clinton.
Without question, both political parties and the President have been incredibly irresponsible and reckless in getting us to where we are today, callously choosing to put their own reelection before the economic and financial well-being of the country.
So how do we best solve the problem while averting a massive catastrophe which could sharply increase interest rates, cripple the economy and put many millions and millions more Americans out of work. This not to mention the crowding out effect on vital government services and the added pressure on defense, especially at a time when we’re facing the gravest threat to our national survival in our history.
1. Because Congress has proven utterly incapable of fiscally disciplining itself, passing a balanced budget amendment with a maximum target revenue cap of 18.5% of GDP is absolutely imperative and must be a condition of any debt increase other than one for 60 days or so to permit proper deliberations on the amendment, provided a conceptual agreement going in.
2. Any plan to zero out the annual deficit should not exceed 10 years, with a 50% reduction within 5 years. And in order to have any chance of passage and avert a debt default, spending cuts to revenue increases should be in a ratio of 3 to 1. The increases should be a combination of tightening tax loopholes and reducing subsidies. Thus spending cuts would total $1.125 trillion and revenue increases $375 billion, for a total of $1.5 trillion, the estimated amount of this year’s deficit.
3. Put Medicare and Social Security on a long-term, self-sustainable basis through a combination of premium increases and benefit reduction modifications. Medicare is presently running a some $380 billion annual shortfall, which is expected to rapidly increase.
If the politicians are unwilling to enact legislation very close to what’s outlined above, then I say let them default on the debt and suffer the consequences come the 2012 election. And let Republican presidential candidates as well as the President put their own solutions on the table now so voters can be better guided in 2012.
Most important for the moment, let us all recognize that the short-term consequences of defaulting on the debt, however painful and serious as they will be, will pale in comparison to those of failing to now deliver a responsible long-term solution.
There has never been a better, more opportune time to face the music on deficits, debt and budgetary reform than now.