From guest columnist The Hippie Conservative:
Right now, as we speak, there is a serious debate going on in the halls of Congress. The debate centers around our Nation Debt and how we will attempt to reduce it before we go the way of other debt-ridden countries like Greece, Portugal, Ireland, Spain, Italy and frankly, too many more to mention. Most of these countries share two traits; one, they have approached the 100% debt to GDP ratio (as we also have) and two, they are being put on welfare by the the IMF and the World Bank. The biggest difference between us and them is the second part, for no one on this planet is big enough to bail us out.
There are two approaches to solving this problem and they are NOT mutually exclusive.
The first is to raise “revenue” (the new code word by the Dems for taxes) and the second is cutting spending which is favored by the Reps. The problem is; neither side is being even remotely honest about the options we have or the consequences that we may face. In this piece I will try to disseminate what is really going on and how we could possibly save ourselves before we find ourselves in fiscal ruin. I’m warning you in advance; this is going to be full of boring numbers. However, I’ll try my best to keep it light.
First, let’s understand where we are.
We spend far more than we take in. About $.40 of every dollar we spend is borrowed; some of it from counties that are using that debt to leverage us into deals that are not favorable to our own interest. Debt to GDP ratio is used by lenders in much the same way that equity in your house is used. Reach 100%, and it becomes unlikely that anyone will lend to you anymore (which is why the problem is different now than before under Bush, Clinton, or Reagan.). The spending can be broke down into four main entitlement programs; Medicaid, Medicare, Social Security, and Social Security Disability Income (SS and SSDI are usually grouped together). Also on the table is the Military which, with three running wars that are unpaid for, uses about as much as any one of the entitlement programs. Together they consume approximately 63% of our budget. The debt itself consumes over 6% (in interest) and the remainder is mostly education, Government function and transportation infrastructure. Considering that 70% of the budget is focused on entitlement, military and the debt interest, it is impossible for us to address the problem without cutting those programs unless we raise more “revenue”.
For the Dems that’s an easy fix. Simply raise taxes on the rich. In fact, that’s their answer for everything. The main tenet of Liberalism is simple; the answer to ever problem is more government programs paid for by someone that isn’t them. I’m sorry people, but to a Moderate Centralist like me, that’s all I hear. The problem with Rich people, as I like to say, is that they won’t keep coming to the same corner to be robbed. However, for the sake of argument, let’s see if that is even possible.
The biggest gripe the Dems have is the Bush Tax Cuts. The biggest lie that they tell you is; without it, we wouldn’t be in this situation and would be back into surpluses like we had under Clinton. There are several things wrong with that statement. The Bush tax cuts (for purposes of this piece I’ll include both the 2001 and 2003 cuts) didn’t amount to nearly enough to cover our borrowing. In fact, all 10 years of it would basically only erase this year’s deficit. Not the past 9 years. It’s a clever piece of wordplay, “Without the Bush Tax cuts, we wouldn’t have this deficit.” Correct, if you’re only counting this year’s. The second deception is that they use numbers that include ALL the Bush Tax cuts, not just the part that benefited the wealthy. Those include deductions for dependents, rebates, and raises in the Standard Deduction. While it’s true the bulk of the cuts went to the wealthy, including these cuts to the poor and middle class, it is dishonest in the way it’s presented. Let’s take a quick look at the income tax cut for the wealthiest Americans for example. Bush cut their rates from 39.6% to 35%, a decrease of approx. 5 percentage points or roughly 12% of their tax burden. Given that we get about $ 1 trillion in “revenue” from Federal income taxes and the rich pay about 90% of those revenues, we get; $1 trillion x .12 = 120 billion divided by 90% = $108 billion a year. That’s a nice start, but a loooong way from solving our $1.4 trillion deficit. If you included every part of the Bush cuts that benefit the top 10% (like capital gains, estate tax, etc.), the highest number I can come up with is about $160 billion a year. Again, I would support this, but it’s not the solution on it’s own. We have about $1.24 trillion to go.
Another gripe is; the Bush wars were unfunded. Well, that’s partially true. Some of the cost we would have had anyway. It’s not like military spending just stops when we’re not at war.We spend about $700 billion on defense and it’s hard to see a way we could reduce that by much since most of that is simply maintaining the military. A lot of the actual war cost was funded through one-time appropriations which would put it outside of the 70% we’re trying to cut . Accounting all the defense budget as being a target for cutting is once again dishonest. However, stopping all the wars (which I’m in favor of) would definitely save money through contracts. My research only showed that defense contract accountability needs to be stepped up. A safe number would be $ 100 billion saved a year. On the actual defense budget side, I’ll go with the the Bowles-Simpson plan which recommended $100 billion in cuts. So, we would save another $200 billion which would bring us to $1.04 trillion. Still a long way to go.
Probably the single most dishonest thing that is being chanted by the media is that without a raise in the debt ceiling, we will “most likely” go into default. If that’s the “most dishonest”, then this statement is the second most dishonest, “Social Security checks won’t go out.” Both are patently not true unless the Obama administration makes them true. How would we not go into default? One solution is simple-print money. During the celebrated QE1 and it’s sister, QE2, the Treasury printed hundreds of billions of U.S. dollars. Why can’t we just print more? Unlike borrowing, printing doesn’t go on the debt. Social Security is also not the problem. S.S is almost completely self supporting. Why would they stop those checks then? The same reason your local school cuts busing when a millage fails; they want YOU to suffer, not them.
On the Republican side I hear only one argument, “Taxes of any sort will stifle the economy.” I would rate this as true to a point. The best way to tax is to tax prosperity, that’s what Clinton did. Taxing people when they are struggling however, particularly small business, practically guarantees that more will fail. That’s not rocket science. However, marginal tax increases on companies that aren’t struggling, like the oil companies, seems necessary. This is a well we have to be careful not to drain. Never in history has it been easier for companies to yank up their headquarters signs and move to some place more tax friendly. If you want an example, look at Michigan. I am convinced that there is a small amount that can be taken without pushing them out. How much depends on the company and it’s situation. I would warn anyone who thinks taxing corporations is the solution to think again. They won’t, and don’t have to, keep coming to the same corner to be robbed.
In conclusion, we are in dire straits. We CAN NOT tax our way out of this. The Democrats that are selling that line are simply lying to you. What they are really telling you is that we won’t commit suicide if we go up a couple of floors before we jump. The truth is; it will just take longer to fall and we’ll hit the bottom harder. We CAN NOT avoid cutting entitlements…I’m sorry. Taxing to alleviate some of the pain is necessary, but is not the solution. Democrats get fired for cutting social programs and entitlements. Republicans get fired for raising taxes. Both sides are fighting to blame the other for the cuts and taxes that both sides know is necessary. The only solution is forgiving both sides and taking the medicine for our sickness of spending too much and taking in too little.
– H.C.
The Hippie Conservative blogs at http://thehippieconservative.blogspot.com/
The Unmitigated Word 
I think what pisses me off most about this discussion is the default conversation. Why or how the hell could that happen? The federal government has substantial cash flow from tax collections. Interest on the federal debt is about 10% of the federal budget, so why would the Treasury ever be late paying interest on US debt securities? Maturing securities could be rolled over without a debt limit increase. There is no doubt that not raising the debt limit will cause real chaos, because one third of the F2011 budget is planned to be funded by new debt. However, there is no way the President and Secretary of the Treasury would ever let the US default on a debt obligation. It will not happen.
Hey J. Alex,
Your absolutely correct. There is NO reason we should go into default under any circumstance. This is nothing but a scare tactic. As far as the interest on our debt being 10%. I found several numbers and I know it changes day to day depending on the T-bill rates. I find 10% to be a bit high though, so for the purpose of this piece I chose the lowest number I found. Thanks for your comments.
Side note: I don’t know if I’d said this before, but I love your writing. Very expressive and passionate, with solid research to back up your claims. It’s a shame people like you are being pushed aside on TV shows for babbling heads morons we see on CNN, Fox News, MSNBC, etc.
Thanx J.Alex,
Since I live and breath in the middle ground, I sometimes find myself attacked from both sides. It’s very nice to hear I’m not doing so bad occasionally.
Scary stuff, H.C. If we find ourselves defaulting in any way, it will send shockwaves and jitters through markets all across the globe, even IF we can pay down our debt. The signal will be one of instability which is a bad thing, since that’s exactly what credit markets focus on.
It’s very scary. I was talking to one of our top economists here at my university. The subject was; where to hide our retirement money during the inevitable (his word) collapse of our economy. The feeling in the general market is; if we can’t deal with this relatively small problem, how will we deal with the major issues? I wouldn’t worry much about default, In fact, I believe we will have a deal of some sort even if it comes a few days after the deadline. The signal we’re sending IS far more scary. We’re talking about (Republican plan) cutting 85 billion a year out of a 1.4 trillion deficit? That’s like slowing down to 95 mph from 100mph before we hit the bridge.
We had a 5 trillion debt when Clinton achieved a (somewhat disputed) surplus.
By the end of Bush II, The Mistake, we had a 10 trillion deficit and worse, we had an attitude from the Republicans that if we have a terrorist attack – that our response to it – can be more debt and we don’t have to pay for it.
Why…those fools even cut taxes AFTER they decided to have two wars and Medicare Part D.
And NOW… NOW.. that we have the debt … we have all this blather about a “spending” problem without, as far as I can tell, a single list of 1.5 trillion in cuts from ANY Republican ….
So the Republicans ran up the debt and now they say we have a “spending” problem.
Well…. DUH… take a look at the DOD, Afghanistan, Iraq, Homeland Security, and Medicare Part D INCREASES in the budget.
These realities do not seem to bother these guys.
We OWE 14+ trillion and we ARE ADDING TO IT at the rate of 1.5 trillion a year – and the BEST these guys can come up with is to cut entitlements which are about 1/3 of the deficit.
take note – check this chart:
We currently take in barely 1.1 trillion in income taxes to fund the govt.
We ARE SPENDING 1.5 trillion MORE than that.
Of all the fiery rhetoric from Washington – Show me ONE SINGLE PLAN from the Republicans that address the 1.5 trillion deficit that they had a large part in creating.
Hi Veritas,
Your reciting the Dem talking points very well, and there’s nothing inaccurate about them. Bush was a huge spender himself and deserves a large part of the blame. However, stupidity does not justify more stupidity. As bad as Bush was, the debt to GDP ratio was roughly 70% when Bush left and is now 98%. The house is mortgaged to the hilt. the problem is much worse now and that is the difference. To use one of the Reps talking points, the Dems really don’t have a outlined specific plan at all. The reason is; they know entitlements must be cut and they would MUCH rather have it be the Reps or better yet, the Tea Party do the cutting. As far as the entitlements only being 1/3 of the deficit (I noticed you chose “deficit” and not “budget”), I’m not arguing how the borrowing is outlaid since money is fungible and can be moved around. Entitlements do make up the majority of the budget and are the fastest growing part. It’s impossible to not address that. I’m not much into the blame game as both sides have been shoveling money to their constituents for some time now. In my view, both the spending and the tax cuts are to blame.
One of my many frustrations with Congress is that its members don’t seem to understand that compromise is a critical component of their jobs. However, unlike the rest of us, who compromise daily in our professional and personal lives, it seems to elude our elected representatives.
Hey Teachermrw,
Well said! Can we get you to run for Congress with, say, 534 like-minded people? It’s unfortunate that both parties have created such a toxic political environment that any compromise is viewed as capitulation. Maybe some of that is our own fault. Things have gotten so vicious.
Nice post, Hip! Very “Moderate Centrist” of you. You covered all the angles with this one, including my belief that taxation – while noble and “fair” for people who can more than afford it – could have far reaching consequeces. Nicely done, bro.
I wonder what you think of all the 14th amendment talk running around (for those who don’t know, there is vague language in the 14th amendment which may or may not allow the President to skip talks and raise the debt ceiling himself). If all else fails, I suspect Obama will go gangster and raise the ceiling on his own, flexing little used Presidential authority ala Bush. But I can foresee some political ramifications, especially if he does so with out cuts in spending (to satisfying Teabaggers and Neocons) or a hike in taxes (to satisfy Libs). This same scenario could play itself out again a few months down the road, probably still affect the country’s bond rating and play directly into the Republican game plan.
Lots of politics to go around.
Hey Dre,
While I believe that President Obama could raise the debt ceiling through the 14th amendment, he would be ill-advised to do so. It would be seen as an attempt to usurp the authority and constitutional powers of Congress both by Congress and the general public. It would also make him look bad if it was later found by SCOTUS to be unconstitutional, which, considering the make-up, it probably would. He most certainly COULD do it though, as he could by executive authority. It’s kind of like the 4th amendment and the way it’s violated by drug enforcement for seizure of property. For years they violated the 4th amendmend until the SCOTUS declared that it was unconstitutional (They now “arrest” property instead of “seize”, sigh.) Short answer; It’s not unconstitutional until it’s declared unconstitutional. What I find scary is that we needed more taxes and strong cuts both, and it looks like we’ll get neither. Normal day in Congress, kick the can further down the road.