Last week, the President’s Debt Commission released a first report on recommendations for reducing the US national debt. As with everything thrown up in the air in Washington, the report became a political football. That is unfortunate, since our debt goes far beyond outrageous, and it is way past time our elected servants started acting in a fiscally responsible manner.
Disclaimer: I’m not an economist or a fiscal expert at the national level. But I am an expert on my family budget; the main difference is that our national budget encompasses a much bigger family. We (my family) were once deeply in debt. Yes, it was fun at times spending money we didn’t have, but it was painful when the bills came in and kept ballooning. We finally made a commitment to become debt-free. Over a period of years we did so, to the point where we now have only a modest mortgage remaining (which we are paying off ahead of time). We also have a solid emergency fund, and we are saving for retirement.
Was getting out of debt easy? No. Did we have to forgo pleasures, like eating out and vacations, to do it? Sure we did. But we kept our eyes on the prize, so to speak, and we ultimately succeeded.
So let’s look at what the Debt Commission recommends, at a very macro level. What we hear is that the measures break down to about 75% spending cuts and 25% revenue increases. Now I’d personally like to see the 75% larger and the 25% smaller, but given political realities, this may be the best we can do for a start. Note the last three words of that sentence – for a start. The package, even if fully implemented, is estimated to dry up only four trillion dollars of our total debt. According to the numbers at http://www.usdebtclock.org/ the current US national debt is north of 13.7 trillion dollars. And that pales in contrast to the total US unfunded liabilities, which includes money scheduled to be paid out in the future for Social Security, Medicare, and the like. Over 111 trillion dollars! Note also the figure just above that one on the clock: total national assets between 69 and 70 trillion. Looks to me like we are broke as a nation, and badly so.
Four trillion in this mix is nothing more than a halfway decent start. Let’s use it as such and call it such. Let’s do this as well: just as a broke family looking to get out of debt has to weigh every purchase in the light of debt reduction, so must our lawmakers. EVERY expenditure must be scrutinized, and in every case our legislators (and we the people, who hired them) must ask whether the expenditure is truly necessary for the essential functions of the national government (i.e., those spelled out in our Constitution) or just being spent to satisfy some constituency. As a nation, we need to face the pain of eating beans and rice for a while rather than lobster and filet mignon.
One item in the package, on the expense boosting side, is in its current guise counterproductive: the elimination of the federal income tax deduction for mortgage interest. This would raise some additional revenue, at the price of kicking the housing market while it is down – and keep in mind that it was governmental meddling (Fannie Mae, Freddie Mac, and the Community Reinvestment Act for starters) that contributed to that market’s current state. (Lest the reader assume I favor this deduction because I’m a homeowner and therefore benefit, not so. As mentioned, our mortgage is modest, enough so that our deductions the last couple of years were insufficient to make itemizing worthwhile.)
This deduction should indeed go away, but only as part of a more comprehensive tax reform program that realigns incentives in such a way that private investment and job growth are encouraged rather than discouraged. I happen to prefer the Flat Tax idea, but there are others out there. In any event, an improved tax scheme must be based on the principle that the income so derived should only pay for essential functions of government, not expansion of the welfare state. The latter is what got us into this mess.
It’s time for America to go on a serious diet. For an appetizer, one order of debt reduction, please.