America faces horrific economic problems
America faces horrific economic problems that are fairly clear, but all the possible solutions are unpalatable. So Elected officials and our leaders will probably try to avoid getting too specific or, alternatively, divert discussions into debates over technicalities. But even where technical questions are important, basic decisions about policy — and values — have to be made first. To see this in practical terms, it is worth taking a quick look at seven of the most daunting financial issues that need to be dealt with.
The National Debt. Federal government debt now stands at 73% of annual GDP, not counting money the government owes to itself, such as the Social Security Trust Fund. The national debt will reach 93% within a decade, and will go into the danger zone in 15 years, according to the Congressional Budget Office. In 25 years, it will reach nearly 200%, at which point the Federal debt will be insupportable, unless it is devalued significantly through inflation.
Taxes. Total federal taxes are around 18% of GDP today, roughly what they’ve been since the 1950s. State and local taxes, however, have increased substantially over that period. The total taxes are now a bit more than 34% of GDP, up from a low of 26% in the mid-1950s, but below highs of more than 36% reached several times in the past 15 years. So by historical standards, total taxes are not especially low. On the other hand, there is room to raise taxes a bit without going into unprecedented territory. To have a substantial impact, however, tax increases would have to fall on the middle class as well as the affluent. Extending the Bush tax cuts for the middle class and allowing taxes to rise to Clinton-era levels only for households with incomes over $250,000 (and singles over $200,000) would raise enough money to cut the deficit by just around 10% over the coming decade.
Social Security. Benefits are paid mostly from current Social Security payroll taxes. The Trust Fund is largely an accounting device of money the government owes to itself. In any event, the Trust Fund will be exhausted in less than 25 years, well before today’s youngest workers retire. All monies barrowed by the government, must be returned with interest.
The National Debt. Federal government debt now stands at 73% of annual GDP, not counting money the government owes to itself, such as the Social Security Trust Fund. The national debt will reach 93% within a decade, and will go into the danger zone in 15 years, according to the Congressional Budget Office. In 25 years, it will reach nearly 200%, at which point the Federal debt will be insupportable, unless it is devalued significantly through inflation.
Taxes. Total federal taxes are around 18% of GDP today, roughly what they’ve been since the 1950s. State and local taxes, however, have increased substantially over that period. The total taxes are now a bit more than 34% of GDP, up from a low of 26% in the mid-1950s, but below highs of more than 36% reached several times in the past 15 years. So by historical standards, total taxes are not especially low. On the other hand, there is room to raise taxes a bit without going into unprecedented territory. To have a substantial impact, however, tax increases would have to fall on the middle class as well as the affluent. Extending the Bush tax cuts for the middle class and allowing taxes to rise to Clinton-era levels only for households with incomes over $250,000 (and singles over $200,000) would raise enough money to cut the deficit by just around 10% over the coming decade.
Social Security. Benefits are paid mostly from current Social Security payroll taxes. The Trust Fund is largely an accounting device of money the government owes to itself. In any event, the Trust Fund will be exhausted in less than 25 years, well before today’s youngest workers retire. All monies barrowed by the government, must be returned with interest.
Pension Funds. Everyone knows that many pension funds for public-sector employees are in trouble. The shortfall between the amount that should have been saved to pay for future benefits and the amount that actually has been saved totals hundreds of billions of dollars. But even that is a massively understated figure – the real shortfall is probably more than five times as big, or more than $4 trillion.
Medicare. Is projected to rise from 5.4% of GDP to 7.2% in a decade and to at least 9.6% of GDP in 25 years. The Affordable Care Act tries to prevent even faster growth partly by trying to make the American health-care system more efficient. But it also shifts some costs to the states, which will not reduce the total tax burden over the long term. And it reduces payments to doctors and hospitals, which could lead to fewer doctors, longer waiting times or a two-tier system in which people who can pay cash receive significantly better care. Even if the positive aspects of the new health-care law succeed in containing costs as planned, Medicare and Medicaid are projected to consume more than 40% of Federal revenues in 25 years, substantially outpacing the growth of tax receipts even if all of the Bush tax cuts are allowed to expire — including those for the middle class.
Building the Manufacturing industry. We must rebuild our manufacturing base with innovative knowledge and cutting edge technology. Every person added to the workforce reduces the dependency on government support and adds revenue to the government. We must reduce outsourcing of work outside the United States. We have the knowledge, resources, technology, workforce and the will to succeed. Our Water and Energy resources must be expanded to meet current and future needs.
Defense. Military spending was more than 10% of GDP in the 1950s and hit a low of 3.7% in 2000 before the 9/11 attack on the World Trade Center. Since then, the figure has more than doubled in dollar terms, after adjustment for inflation.
Defense. Military spending was more than 10% of GDP in the 1950s and hit a low of 3.7% in 2000 before the 9/11 attack on the World Trade Center. Since then, the figure has more than doubled in dollar terms, after adjustment for inflation.
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