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Mid-Term Election Campaigns Aren't Addressing National Debt

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Mid-Term Election Campaigns Lack Any Mention of the National Debt Issue

By John Ubaldi
Contributor, In Homeland Security

The mid-term elections are fast approaching and Washington is consumed with Supreme Court justice nominee Brett Kavanaugh’s Senate confirmation circus. At the same time, America’s greatest national security threat – the national debt – is being ignored by both Republicans and Democrats.

This past June, the Congressional Budget Office (CBO) warned that if nothing changes over the next 30 years, spending as a share of gross domestic product (GDP) will  increase for Social Security and for major healthcare programs (primarily Medicare). As a result, interest on the government’s debt would also increase.

Many Americans have attributed the tax cuts signed by President Trump in December 2017 as the primary cause for the rise in both the budget deficit and the national debt. The national debt currently stands at $21 trillion and rising.

What hasn’t been calculated into the equation is how an expanding economy – partly due to tax reduction, regulatory relief (designed to foster business growth) and job creation – has brought down unemployment for all sectors of the U.S. economy.

Economists Warn Against Tax Cuts

Some economists disagree with Trump’s approach. Former Federal Reserve Chairman Alan Greenspan, for example, warned that reducing taxes would be an economic mistake.

“Frankly, I think what we ought to be concerned about is the fact the federal debt is rising at a very rapid pace, and there’s nothing in this bill that will essentially stop that from happening,” Greenspan said. “So my view is that we’re premature on fiscal stimulus, whether it’s tax cuts or expenditure increases. We’ve got to get the debt stabilized before we can even think in those terms.”

Greenspan was calling for President Trump and Congress to work together to put the nation on a sustained fiscal trajectory by focusing on the rising entitlements spending, which is driven primarily by a large aging population.

Reduce Spending First

Many economists favor the “starve the beast” formula, advocating that before reducing taxes, spending should be reduced. However, the unfortunate aspect of this economic argument is that spending never gets reduced, because neither party has the political willpower to even begin serious discussions on reducing spending.

The question that is always asked is where do we begin to cut or reduce? Non-discretionary spending – which encompasses the entitlement programs of Social Security, Medicare, Medicaid and others – makes up almost 70 percent of the federal budget.

However, there is no political desire to tackle entitlements. These programs grow at an unsustainable rate. But because these programs were created by an act of Congress, no current politician wants to tackle changing them, because that would be political suicide.

Previous Administrations Have Failed to Reform Entitlement Programs

President Bill Clinton had the perfect opportunity to tackle the explosive entitlements issue when he presided over a booming economy during his years in the White House. However, Clinton ultimately left the issue to his successor, because he did not want to invest his political capital on such a controversial issue.

In his second term, President George W. Bush outlined a proposal to reform Social Security through a partial privatization of the system. But Bush’s plan met with stiff resistance from Democrats, some of whom believed there was nothing wrong with the system. Others feared such a change would be the first step toward destroying the program altogether. Republicans largely wanted nothing to do with this contentious issue.

In 2010, President Obama created the National Commission on Fiscal Responsibility and Reform (often called Simpson-Bowles or Bowles-Simpson after the Commission’s co-chairs, Alan Simpson and Erskine Bowles). The goal of the Commission was to improve the nation’s fiscal situation and achieve long-term fiscal sustainability. Like Clinton, however, Obama passed on any reform of the entitlements system.

Republicans and Democrats Reject Debt Commission Proposal

The Commission produced a proposal as a starting point to reduce the federal debt. However, the document came under immense pressure from many people who felt that it was heavily skewed toward slashing spending and didn’t provide for increases in revenue.

The proposal had six steps:

  • Cap government spending at 21 percent of GDP
  • Reduce mandatory spending
  • Reduce federal healthcare spending
  • Make Social Security sustainable
  • End $1.1 trillion in tax loopholes, which would increase government revenue to 21 percent of GDP while lowering tax rates
  • Various process reforms

A notable critic of the plan was Nobel Prize-winning economist Paul Krugman, who stated, “Simpson-Bowles is terrible. It mucks around with taxes, but is obsessed with lowering marginal rates despite a complete absence of evidence that this is important.”

The focal point of Krugman’s argument is that it would be unwise to reduce tax rates further. Empirical evidence showed that the Kennedy tax cuts of 1964, which were signed into law by President Lyndon Johnson, had a positive impact on the U.S. economy, much like the Reagan tax cuts did in the early 1980s. In both instances, the U.S. economy grew.

Many economists and political leaders have argued that reducing taxes will have a positive impact on the economy, but what is always missing from both Democrats and Republicans is where to reduce spending. As a result, federal spending is never reduced.

Political leaders from both parties fail to understand what business learned long ago – you have to be more productive with existing resources. In the 21st century, utilization of the latest technological advancements has transformed businesses all over America. Unfortunately, our government still seems to operate in the pre-technological era.

Waste in Defense and Domestic Programs

Just this past month, the Government Accountability Office (GAO) reported that the Defense Department needs to reduce inefficiencies in its 19 agencies and eight field activities that encompass the Defense Intelligence Agency, the Defense Information Systems Agency, the Missile Defense Agency, the National Geospatial-Intelligence Agency, and the National Reconnaissance Office. Reducing inefficiencies from these agencies would save the Pentagon billions of dollars.

Even in 2015, the GAO reported that the F-35 fighter jet – the most expensive weapons system in history – will cost approximately $1 trillion in maintenance and operational costs over the lifetime of the aircraft. However, one can’t just look at the Defense Department to reduce spending without also including all of the wasted dollars in domestic spending.

With this year’s 10th anniversary of the financial crisis, the federal home mortgage assistance programs known as Fannie Mae and Freddie Mac still enjoy special benefits not afforded to commercial mortgage companies. One of those benefits is the implicit guarantee that the federal government will bail out these two programs should real estate again take a severe downturn as was the case in 2008-09, when they lost a total of $187 billion from risky investments.

If the national debt is to be reduced, there needs to be a 21st-century federal government reform act that totally transforms how the federal government allocates and spends the nation’s money.

We should heed the words of James Madison, who wrote in an 1822 letter to politician and jurist W. T. Barry: “A popular government, without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy; or, perhaps both. Knowledge will forever govern ignorance. And a people who mean to be their own governors, must arm themselves with the power which knowledge gives.”

The knowledge is there; it’s now time to act. Failure to reduce government spending will only bring a fiscal Armageddon to America.

 

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