By Robert Romano –
It is time to stop kicking the can on the $13.8 trillion national debt. Sharp spending cuts, the elimination of corporate welfare and subsidies, and a flattening of the tax code at lower rates are all needed to bring America’s fiscal house into order.
2011 is the year this can begin to happen. The two-year extension of current tax rates offers a temporary reprieve for the embattled economy, but the current tax code is still broken. It is rife with exemptions, corporate subsidies, and other spending disguised as tax credit giveaways that seek to centrally plan the economy through incentives — and it’s all adding to the debt.
This cannot continue. A flatter system at lower rates without those subsidies, credits, and privileged exemptions is needed to get government out of the business of picking winners and losers, and to get the budget under control.
The Simpson-Bowles commission proposed such a system, but even based on its generous projections, it is clear that tax reform alone will not suffice to bring down deficits. The commission only finds on average $87 billion a year in deficit reduction from changes in the tax code. That hardly makes a dent in the current $1.3 trillion annual budget deficit.
Which of course means spending cuts are needed. A recent International Monetary Fund study finds that the most successful fiscal consolidations globally focus primarily on reductions in outlays, as noted by the American Enterprise Institute’s Kevin Hassett. Unfortunately, the commission only finds $246 billion on average a year in cuts to make. It does not foresee a balanced budget until 2035.
That still leaves a structural deficit of about $1 trillion that is completely unaddressed. Barring significant increases in the Gross Domestic Product boosting revenue, there are not nearly enough cuts in spending on the table being considered right now. We cannot grow our way out of this.
In fact, if nothing is done, the debt will soon be larger than the entire economy. The Federal Reserve will be the top lender in the world to the U.S. government next year — it’s already amassed some $967 billion worth, more than China or Japan. That’s all just printed money. Making matters worse, Moody’s has threatened to shift the credit outlook of the nation to negative as soon as 2011, and to downgrade our Triple-A credit rating by 2018 if the accumulation of debt is not reduced drastically. If that happens, a funding crisis would ensue, borrowing costs will skyrocket, inflation would rise, and the dollar’s status as the world’s reserve currency would be threatened.
So, what is to be done? Especially since there is now a large bipartisan consensus not to raise taxes in this current economic environment, that means that the deficit can only be reduced by cutting spending significantly.
But to even get there, Congress must first stop increasing spending. The recent defeat of the $1.27 trillion omnibus bill by Senate Republicans offers some reason for hope that spending can be cut. But the 74-day continuing resolution being adopted in its place will only keep spending the same as it was in 2010. No cuts.
Nonetheless, Americans for Limited Government President Bill Wilson sees the continuing resolution as a step in the right direction. He explained that the deal to fund the government until March 4th, 2011 “will give the next Congress the opportunity to actually make spending cuts to begin to bring our fiscal house into order in 2011 instead of continuing the kick the can.” That means the incoming Congress will have to address spending right away when it gets sworn in.
A recent editorial by the Washington Post emphasizes the need for the debt to be acted on in 2011. “We agreed… that the faltering economy on balance justified this year’s tax deal — but only with the proviso that lawmakers and the administration make a quick pivot to long-term deficit reduction,” the editorial states.
The omnibus bill went in the opposite direction. It would have increased spending and been left in place until September 30th, 2011. Because of public outcry against the measure, Senate Republicans rallied against it and, fortunately, it was defeated. “Senate Republicans forced Senate Majority Leader Harry Reid and the Democrats to acknowledge the elections. The omnibus ploy was insulting to the people and dangerous for our nation,” Wilson noted.
This could mark a change in public perception of Congress’ mandate, Wilson explained. “It is no longer Congress’ job to borrow and spend billions of dollars it doesn’t have. Now, its job is to cut spending and to find a way to reduce the national debt so that we can return to a sustainable path as a nation. That is what the American people voted for in November.”
All of which puts a lot of pressure on Congress to actually cut spending, especially on House Republicans who will be in the majority in 2011. But, Wilson sees the problem in a bipartisan light. “As a nation, we must stop heaping new debt on the shoulders of our children and grandchildren. That is what the American people expect, and that is the standard they will hold their representatives to, whether they are Democrats or Republicans.”
Wilson concluded, “The fiscal crisis that looms and the hard choices we face are shared by all Americans.” And that means that Congress will have to set aside its differences and act now to spare the nation a Greek-like crisis. The next time the can is kicked, it will be off a cliff.
Robert Romano is the Senior Editor of Americans for Limited Government (ALG) News Bureau.
