Fixing our Enormous Fiscal Gap

Michele Bachmann | August 11, 2010 1:52 PM

It’s no secret the U.S. government is in dire financial straits, but Democrats keep spending billions like its Monopoly money. The International Monetary Fund (IMF) recently released its annual review of U.S. economic policy, so since Democrats have ignored the warning signs until now, its time to listen up.

The IMF reported, “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It continues, “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Stated a little more bluntly by Laurence Kotlikoff, economics professor at Boston University, “The IMF has effectively pronounced the U.S. bankrupt.”

If our nation is in fact bankrupt, where do we turn first to rectify our fiscal gap? Kotlikoff lays out the return on doubling our taxes:

“To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

“Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.”

If doubling tax revenue isn’t a viable option, Kotlikoff sees two other possibilities: Either massive benefit cuts must be enacted on retired baby boomers or we ramp up the printing presses to produce more money.

Now is the time for Congress to reexamine our spending patterns so we don’t have to follow the aforementioned paths. This is our fiscal wake-up call.