The following was written by my teenage daughter and presented as an argumentative essay to her American Literature classmates. If a 16-year old can figure this stuff out, why can’t Congress?
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The United States has a big debt problem. The total national debt is currently almost $19.3 trillion. If it sounds like a very big number, that’s because it is. A stack of $100 bills adding up to $19.3 trillion, for instance, would reach 1.3 million miles into space, beyond sky high. If $19.3 trillion in one dollar bills were laid end-to-end, they would stretch from the Earth to Saturn and back, and you’d still have enough left over for a round trip to Mars.
Even more troubling, our debt is increasing by over $160 billion every month. And, if you are wondering why you should care, your share is $161,000. By the time you graduate from college, it’ll be closer to $200,000.
Like any individual, the U.S. has to borrow money if it spends more than it can afford. The shortfall is called the budget deficit, and the accumulated borrowings are called the national debt. We’re not shy about spending more than we can afford. In fact, we’ve become pretty good at it, running a budget deficit 45 out of the last 50 years.
In 2015, the government spent $3.7 trillion, but took in $3.25 trillion, resulting to a $438 billion deficit. The Congressional Budget Office predicts the 2016 budget deficit will grow by 22% to $534 billion. What this means is we’ll need to borrow another $534 billion just to make ends meet. Our national debt is expected to exceed $20 trillion by early next year.
Fortunately, the federal government pays a much lower interest rate when it borrows money than the average person does. But, even with interest rates at historic lows, the U.S. spent $223 billion last year in interest on its debt.
Imagine not having to waste $223 billion on interest. We could build a new house for every single homeless person in America and still have enough left over to double the research budget of the National Institute of Health and quadruple the amount spent on alternative energy research, build 1,000 community hospitals and 10,000 daycares, and repave the nation’s 48,000 miles of crumbling interstate highways. Imagine the millions of jobs that would be created.
The U.S. is not on a sustainable path, let alone a path to recovery. Fortunately, there are many ways to reduce and eventually eliminate the burden of our enormous debt. None of them will be popular. That ship has sailed to far off shores. But, if we have the courage to act now, there is hope.
Examining specific steps than can be taken to reduce expenses and increase revenues would be the first step in balancing the federal budget. A balanced budget would mean the federal debt is no longer increasing. If the U.S. can go the next step further, and take in more than it spends, we might even be able to start reducing, and possibly even eliminating the national debt.
The national debt will continue to grow as long as the government spends more than it takes in. Therefore, in order to get our debt under control, we must first get our budget deficit under control. The answer is very straight-forward: increase revenue and/or reduce spending.
The revenue side is pretty straight-forward: collect more taxes. Of the $3.25 trillion the federal government received in 2015, 47% came from individual income taxes, 33% from payroll taxes, 11% from corporate income taxes and 9% from other sources. Real (inflation-adjusted) income has fallen steadily since 1999, so raising taxes on the average individual might be difficult.
The wealthiest Americans, however, can often take advantage of tax shelters and loopholes that less affluent taxpayers can’t. The famous billionaire Warren Buffett was quoted as saying he pays a lower tax rate than his secretary. “I’ll probably be the lowest paying taxpayer in the office.”
A 2013 study published by the Huffington Post estimates that tax savings for wealthy Americans could total over $3 trillion per year. Special deductions, exemptions, exclusions, and loopholes amount to a $1.1 trillion piggy bank for the rich. Underpayments, simply not disclosing income, add another $450 billion. Tax havens add $250 billion. And, payroll and estate tax breaks for the wealthy add about $400 billion.
Citizens for Tax Justice estimates that over $90 billion is avoided every year through legal tax dodges by corporations. Other estimates, such as in the Huffington Post study, indicate the savings exceed $400 billion. A recent USA Today article reported that 27 of America’s 500 largest corporations, including General Motors, United Continental Airlines and Level 3 Communications, paid no taxes whatsoever in 2015 despite being profitable.
There are other ways to raise revenues. According to the Center for Economic and Policy Research, a half-cent tax on each dollar of financial transactions in stock, bond and commodity markets would generate $300 billion per year. Wall Street will whine, but they’ll get over it. They helped cause the problem in the first place.
The other path to balancing the budget and reducing the debt involves cutting back on expenses. Aside from the 6% spent on interest payments, the largest shares of the $3.7 trillion the government spent last year belong to healthcare (25%), social security (24%), non-defense discretionary (16%), defense (16%) and other mandatory (13%).
Social security is an obvious place to start. It was originally created as a safety net during the depression, but has since grown to include a large variety of benefits, many of which are payable regardless of someone’s income. However, phasing out benefits for Americans earning over $100,000 would only save about one percent per year.
The growth of healthcare expenses is generally considered to be out of control, and deserves an essay all its own. The problems have been widely debated, and solutions have been difficult to find under the current structure.
Mandatory spending includes such expenses as food stamps and unemployment compensation, which are hard to reduce when the economy is not doing very well.
But, non-defense discretionary spending, which is used to run organizations such as the Department of Education, EPA and Agriculture Department, is in need of a major overhaul. A 2014 Government Accounting Office report found that only 123 of the 380 budget areas that represented duplication or overlap over the years had even been addressed. And, a Citizens Against Government Waste report includes 604 spending cut recommendations that would save taxpayers $642 billion in the first year and $2.7 trillion over five years.
At $583 billion, the defense department budget is another easy target. The United States spends more money on its military than the next seven countries combined — about 37% of the world’s total military spending. For the most part, this doesn’t even include the $4-6 trillion spent on the unwarranted wars in Iraq and Afghanistan, or whatever whack-a-mole war we find ourselves in next.
A recent study by the Congressional Budget Office identified $310 billion in spending on military programs that were no longer even authorized. Eliminating these expenses would cut military spending by more than half and go a long ways toward balancing the budget. And, it’s hard not to wonder how much of the $583 billion could be eliminated if the U.S. spent more on alternative energy research that would free us from dependence on Middle East oil.
The ideas discussed above, if implemented, could save a total of $952 billion in the first year alone. Combined with the $3 trillion in revenue increases discussed, the US could theoretically return to a budget surplus.
Some argue that the budget process is too political and too complicated to make significant cuts. It’s true that special interest groups and lobbyists frequently influence both the Administration and Congressional lawmakers. But, if the presidential race in 2016 is any guide, American voters are becoming more and more aware of back-room deals and their consequences. As they do, they will reward and reelect responsible politicians who put the good of the country ahead of money and favors, and fire those whose votes are for hire.
Another argument often made is that many programs are too entrenched to be eliminated. This might have been true in the past. But, as more Americans begin to understand that excessive debt is squeezing out much-needed services, they will demand change. Politicians will have no choice but to deal with the debt problem if they want this country to survive.
Last, it could be argued that the amount of debt is too big to overcome. Granted, the amount is huge, built up over years. It could take years for it to disappear. But, if the politicians and those who vote them into office are willing to make the sacrifices required, it should be possible to reduce and then eliminate the deficit. And, once the debt stops growing, it should be possible to start chipping away at it — however long it takes.
America’s debt problems are huge. They’re getting worse every hour of every day. If nothing is done, they will continue to consume more and more of our wealth. Leading an active, outdoor lifestyle could mean living in a van down by the river.
Yet, there are many actions which can be taken. Taxes can be increased in such a way that the burden falls on those most able to deal with it. And, expenses can be cut in such a way that essential services to the most vulnerable Americans are not impacted.
There will be many who fight the necessary changes. But, isn’t the future of the country more important than a defense contractor or lobbyist’s year-end bonus? This country was built by men and women who believed in fair pay for hard work, living within your means, and taking care of the next generation.
It’s a shame that the current generation has robbed future generations of the same security and comforts of life that they, themselves, have had. But, it doesn’t have to stay that way. If enough citizens insist on a fair, frank and frugal approach, the future need not consist of cat food dining, or vans down by the river. By practicing a little sanity, we can preserve life’s sanctity.
The data tells us that the average American is paying 30.6% more for regular unleaded than they did on Feb 11 (from the looks of the graph, it’ll go higher still this summer.) But, it doesn’t tell us “why.”
As we’ve been writing about for at least the last six months, CL has become the single most powerful driver of algorithms that determine day-to-day and even moment-to-moment stock prices. I most recently touched on the relationship here: How to Engineer a Rally
