We Have a Spending Problem, Not a Revenue Problem
Even if all Bush tax cuts are extended and the AMT is patched, tax revenues will rebound to 18.2% of GDP by 2020—slightly above the historical average. They will continue growing afterwards…
CBO figures show spending…which has averaged 20.3% of GDP over the past 50 years… surging to a peacetime record 26.5% of GDP by 2020 and also rising steeply thereafter.
Putting this together, the budget deficit, historically 2.3% of GDP, is projected to leap to 8.3% of GDP by 2020 under current policies. This will result from Washington taxing at 0.2% of GDP above the historical average but spending 6.2% above its historical average.
Full article on runaway government spending.
Clearly, we have a spending problem, not a revenue problem.
And this is why we need a VAT tax? NOT This is why we need spending cuts.
The article also explains, interestingly, that the Bush tax cuts have had only a minor impact on the overall amount of accumulating debt.
The question is: Are we going to default?
These numbers aren’t event the worst. We have $100 trillion in debt if you factor in unfunded mandates. The President and Congressional Budget Office would be in jail if they were running a corporation.
We need to get the government–both federal and states–out of the retirement, healthcare and education industries. These are not human rights.
We have a spending problem, not a revenue problem is absolutely correct.
We also have a problem at how we view entitlement spending. It is about as absurd as going to a neurosurgeon and he says “Don’t worry. You have no problem . It is a no-brainer.”
According to the Joint Economic Committee, in Aug. 2001, this was stated about the entitlement portion of the total debt (the intragovernmental debt)
“Economists consider net debt as the proper measure of federal debt. Increasing (or decreasing) net debt represents a withdrawal of money from (or a release of money to)financial markets and may affect the broader economy. Public issued Treasuries represent legally binding committments with other parties that cannot be abrogated. In contrast, The U.S. government is both the creditor and the debtor for Treasuries held in intragovernmental accounts. President Bill Clinton explained this point in his Fiscal Year 2000 Budget: “These balances in intragovernmental accounts are available … but only in a bookkeeping sense.”
Thus, an increase (or a decrease) of Treasuries in these accounmts is merely a bookkeeping entry that does not affect financial markets or the broader economy. Placing Treasuries in an intragovernmental account is similar to lending money to yourself. You may increase your loan balance infinitely or pay it off entirely, but neither action can change the amount of money in your pocket. Henceforth, federal debt refers to net debt unless otherwise indicated.”
So, entitlement obligations, like Social Security and Medicare are not considered debt by ecinomists.
Rather, the full faith and credit backing these promises is nothing other than bookkeeping entries!
And really, we need not be concerned about paying off the loan balance for Social Security and Medicare. The effect would be the same as increasing the loan indefinitely: We still have the same amount of money in our pockets.
Wow, that seems to be a no-brainer – just keep making eternal loans, and don’t worry about any paybacks!
Don Levit