- Feb 8, 2001
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One of the scariest aspects of the current Administration's fiscal policies is how rapidly the national deficit has increased and large it is in comparison to the national GDP, a GDP that is expected by most economists to stay stagnant at best for at least several more years - and that is barring systemic shocks.
"At 41% of GDP in 2008, the accumulated federal debt will rise to 82% by 2019. One out of every six dollars spent then by the feds will go to interest, compared with 1 in 12 dollars last year. Out-year budgets will require an increase in everyone's income taxes, raising federal income taxes an average of $11,000 for families, a hike of 55% per household - a political impossibility."
Or is it? At some point all of this borrowing needs to be repaid and, other than by forcing inflation, you do it by imposing massive increases in taxation. Or you can decide to cut out all of the goodies that have been promised and you do it now.
Right now the discussion is about confiscatory taxes on everyone who is upper middle class or higher up the economic ladder. You know, those people who's industry and investment make for jobs? But, the amounts that are being spent and planned for spending will require much higher rates of taxation and an expansion of the tax base to include even those much less well off, just to avoid a meltdown. It is not a matter of if, just a matter of when.
It is amazing that this Administration has not paid any attention to Dr. Arthur Laffer's work, especially his most recent, and this is despite some of his most prominent proteges working in the Administration. Tax revenues are guaranteed to fall off almost as quickly as the rates are increased and vice versa. Why do we need another recounting of this lesson?
The only rational option is to put an axe to current and future government spending, cut non-essential entitlements and get back to the smallest government footprint that we can manage as a benevolent society. This, however, is not in the cards unless the Democrats lose power in Congress, and, eventually, the White House.
I do believe the Republicans, who themselves spent in substantial deficit not that long ago (though not nearly to the crazy level the Democrats are now) and violated all of their previous philosophical posturing on small government, will take over the House in 2010 and make inroads in the Senate. But that means they will also have to act in concert to reverse the excesses of the first two years of the current Administration's largess - and that will not be an easy thing to do.
We can debate the value of all of the Administration's proposals to inject the Government into our lives at every level and to take over broader and broader swaths of our economy, but the first thing we should be consider is if we can afford it at all. And that discussion is not taking place as forcefully as it should be.
Drowning in debt: Obama's spending and borrowing leaves U.S. gasping for air
Sunday, August 9th 2009, 4:00 AM
Mort Zuckerman
Drowning in debt: Obama's spending and borrowing leaves U.S. gasping for air
The unprecedented, improbable and indeed almost unimaginable global financial crisis has virtually put an end to the comfortable notion that American and Western capitalism would dominate the world economy. In turn, the financial meltdown threatening another Great Depression has been the rationale for a phenomenal expansion of government spending to prop up demand and fend off economic disaster.
As a result, the deficit quadrupled from $459 billion in 2008 to $1.85 trillion this year. It has gone from 3.2% of gross domestic product to 13.1%, twice the post-World War II record of 6% in 1983 under President Reagan. What's more, the debt surge is unlike the one that accompanied WWII in that it will not be temporary.
The nonpartisan Congressional Budget Office reckons that the deficit will run for a decade and will still exceed $1.2 trillion in 2019. By that time, the United States will have virtually doubled its national debt, to over $17 trillion. Then, after 2019, we get another turn of the screw as the peak waves of baby boomers move into their retirement years and costs soar for the major entitlements, Social Security and Medicare.
At 41% of GDP in 2008, the accumulated federal debt will rise to 82% by 2019. One out of every six dollars spent then by the feds will go to interest, compared with 1 in 12 dollars last year. These out-year budgets will require an increase in everyone's income taxes, raising federal income taxes an average of $11,000 for families, a hike of 55% per household - a political impossibility.
The Government Accountability Office estimates that by 2040, interest payments will absorb 30% of all revenues and entitlements will consume the rest, leaving nothing for defense, education or veterans' pensions.
If the economy would grow quickly, we might hope to pay down this debt. No such luck. The GDP trajectory is gloomy, and on top of that, the demands of special interest groups threaten to reduce growth even more. Just look at the medical world, which pushes expensive treatments at government expense for its benefit.
American attitudes and behavior have undergone a substantial change. We are saving more and paying down debt. We are transforming our society from a consumer culture to a culture of thrift. In a recent Wall Street Journal/NBC News Poll, Americans were asked which economic issue facing the country concerns them the most. Deficit reduction ruled over health care. Half were prepared to defer spending or to spend less, even if it meant extending the recession.
The feeling has grown that the Obama administration is taking on too much, that the President is trying to "boil the ocean." Obama's budget is packed with a wish list of extensive new programs, especially a giant health care reform plan whose financing is thinly based. Rather than talking - optimistically! - about a deficit-neutral outcome, the President should be proposing a program that reduces the cost of the most expensive health care in the world.
The public still likes Obama and recognizes his talent, but when it comes to deficit financing of programs, we have a country of "born-again budget hawks" who will rise up if taxes are boosted to pay for it all.
Main Street feels it will recover only when American finances are on a sounder footing. It believes that it will never recover if huge new national programs are allowed to create a monstrous structural deficit that will keep building the debt burdens far into the future to unsustainable - perhaps ruinous - heights, while a weak recovery means lower federal revenues, the piling on of more interest obligations, and thus even higher deficits.
Ruinous tax increases are inevitable if spending cuts remain outside the President's agenda.
Everybody is dazed and confused by all this talk of additional indebtedness in the trillions of dollars. Our soaring national debt will require cataclysmic adjustments to accomplish the restoration of a balance in our fiscal position.
Otherwise, we face a dramatic erosion of U.S. economic and financial standing, raising the risk of skyrocketing interest rates and a crash in the value of the dollar. Americans can no longer rely on their stocks and the soaring value of their homes to put their kids through college and support early retirement. For the first time since the Depression, U.S. companies are not only cutting jobs; they are cutting wages. We are undersaved and underpensioned, and we will have to adjust to a more frugal life.
With too much mortgage debt on their homes, too much credit card debt on their personal income, and too much overall debt, Americans have learned that they cannot continue to be borrowers.
Shakespeare had it at least half right when he said, "Neither a borrower nor a lender be." President Obama should heed Polonius.
"At 41% of GDP in 2008, the accumulated federal debt will rise to 82% by 2019. One out of every six dollars spent then by the feds will go to interest, compared with 1 in 12 dollars last year. Out-year budgets will require an increase in everyone's income taxes, raising federal income taxes an average of $11,000 for families, a hike of 55% per household - a political impossibility."
Or is it? At some point all of this borrowing needs to be repaid and, other than by forcing inflation, you do it by imposing massive increases in taxation. Or you can decide to cut out all of the goodies that have been promised and you do it now.
Right now the discussion is about confiscatory taxes on everyone who is upper middle class or higher up the economic ladder. You know, those people who's industry and investment make for jobs? But, the amounts that are being spent and planned for spending will require much higher rates of taxation and an expansion of the tax base to include even those much less well off, just to avoid a meltdown. It is not a matter of if, just a matter of when.
It is amazing that this Administration has not paid any attention to Dr. Arthur Laffer's work, especially his most recent, and this is despite some of his most prominent proteges working in the Administration. Tax revenues are guaranteed to fall off almost as quickly as the rates are increased and vice versa. Why do we need another recounting of this lesson?
The only rational option is to put an axe to current and future government spending, cut non-essential entitlements and get back to the smallest government footprint that we can manage as a benevolent society. This, however, is not in the cards unless the Democrats lose power in Congress, and, eventually, the White House.
I do believe the Republicans, who themselves spent in substantial deficit not that long ago (though not nearly to the crazy level the Democrats are now) and violated all of their previous philosophical posturing on small government, will take over the House in 2010 and make inroads in the Senate. But that means they will also have to act in concert to reverse the excesses of the first two years of the current Administration's largess - and that will not be an easy thing to do.
We can debate the value of all of the Administration's proposals to inject the Government into our lives at every level and to take over broader and broader swaths of our economy, but the first thing we should be consider is if we can afford it at all. And that discussion is not taking place as forcefully as it should be.
Drowning in debt: Obama's spending and borrowing leaves U.S. gasping for air
Sunday, August 9th 2009, 4:00 AM
Mort Zuckerman
Drowning in debt: Obama's spending and borrowing leaves U.S. gasping for air
The unprecedented, improbable and indeed almost unimaginable global financial crisis has virtually put an end to the comfortable notion that American and Western capitalism would dominate the world economy. In turn, the financial meltdown threatening another Great Depression has been the rationale for a phenomenal expansion of government spending to prop up demand and fend off economic disaster.
As a result, the deficit quadrupled from $459 billion in 2008 to $1.85 trillion this year. It has gone from 3.2% of gross domestic product to 13.1%, twice the post-World War II record of 6% in 1983 under President Reagan. What's more, the debt surge is unlike the one that accompanied WWII in that it will not be temporary.
The nonpartisan Congressional Budget Office reckons that the deficit will run for a decade and will still exceed $1.2 trillion in 2019. By that time, the United States will have virtually doubled its national debt, to over $17 trillion. Then, after 2019, we get another turn of the screw as the peak waves of baby boomers move into their retirement years and costs soar for the major entitlements, Social Security and Medicare.
At 41% of GDP in 2008, the accumulated federal debt will rise to 82% by 2019. One out of every six dollars spent then by the feds will go to interest, compared with 1 in 12 dollars last year. These out-year budgets will require an increase in everyone's income taxes, raising federal income taxes an average of $11,000 for families, a hike of 55% per household - a political impossibility.
The Government Accountability Office estimates that by 2040, interest payments will absorb 30% of all revenues and entitlements will consume the rest, leaving nothing for defense, education or veterans' pensions.
If the economy would grow quickly, we might hope to pay down this debt. No such luck. The GDP trajectory is gloomy, and on top of that, the demands of special interest groups threaten to reduce growth even more. Just look at the medical world, which pushes expensive treatments at government expense for its benefit.
American attitudes and behavior have undergone a substantial change. We are saving more and paying down debt. We are transforming our society from a consumer culture to a culture of thrift. In a recent Wall Street Journal/NBC News Poll, Americans were asked which economic issue facing the country concerns them the most. Deficit reduction ruled over health care. Half were prepared to defer spending or to spend less, even if it meant extending the recession.
The feeling has grown that the Obama administration is taking on too much, that the President is trying to "boil the ocean." Obama's budget is packed with a wish list of extensive new programs, especially a giant health care reform plan whose financing is thinly based. Rather than talking - optimistically! - about a deficit-neutral outcome, the President should be proposing a program that reduces the cost of the most expensive health care in the world.
The public still likes Obama and recognizes his talent, but when it comes to deficit financing of programs, we have a country of "born-again budget hawks" who will rise up if taxes are boosted to pay for it all.
Main Street feels it will recover only when American finances are on a sounder footing. It believes that it will never recover if huge new national programs are allowed to create a monstrous structural deficit that will keep building the debt burdens far into the future to unsustainable - perhaps ruinous - heights, while a weak recovery means lower federal revenues, the piling on of more interest obligations, and thus even higher deficits.
Ruinous tax increases are inevitable if spending cuts remain outside the President's agenda.
Everybody is dazed and confused by all this talk of additional indebtedness in the trillions of dollars. Our soaring national debt will require cataclysmic adjustments to accomplish the restoration of a balance in our fiscal position.
Otherwise, we face a dramatic erosion of U.S. economic and financial standing, raising the risk of skyrocketing interest rates and a crash in the value of the dollar. Americans can no longer rely on their stocks and the soaring value of their homes to put their kids through college and support early retirement. For the first time since the Depression, U.S. companies are not only cutting jobs; they are cutting wages. We are undersaved and underpensioned, and we will have to adjust to a more frugal life.
With too much mortgage debt on their homes, too much credit card debt on their personal income, and too much overall debt, Americans have learned that they cannot continue to be borrowers.
Shakespeare had it at least half right when he said, "Neither a borrower nor a lender be." President Obama should heed Polonius.
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