The further to the left or the right you move, the more your lens on life distorts.

Thursday, February 22, 2018

Down the Road

For many years, those of us who believe that an ever-increasing national debt is toxic and will ultimately lead to crisis have accomplished little. The Democrats have never seen a federal spending program (oh, excuse me, they use the word "investment" more frequently today) they didn't like and the GOP has no inclination to downsize government in any meaningful way. So the national debt roars past $20 trillion.

John F. Cogan comments:
The federal deficit is big and getting bigger. President Trump’s budget estimates a deficit of nearly $900 billion for 2018 and nearly $1 trillion (with total spending of $4.4 trillion) for 2019. Its balance sheet reveals that the public debt will reach $15.7 trillion by October. This works out to $48,081.61 for every man, woman and child in the U.S. That doesn’t count unfunded liabilities, reported by the Social Security and Medicare Trustees, that are four times the current public debt.

How did the federal government’s finances degenerate this far? It didn’t happen overnight. For seven decades, high tax rates and a growing economy have produced record revenue, but not enough to keep pace with Congress’s voracious appetite for spending. Since the end of World War II, federal tax revenue has grown 15% faster than national income—while federal spending has grown 50% faster.
Donald Trump has kept many campaign promises during his first 12 months in office, but one that I wish he'd break is his promise not to touch entitlement reform. Both Social Security and Medicare, along with a plethora of smaller but still expensive social welfare programs are unsustainable in the long term, and yet, those programs have grown from 4 percent of GDP in the 1940s to 14 percent of GDP today. By the way, defense and non-defense descretionary programs haven't grown at all as a percentage of GDP.

Cogan continues:
What about the future? Social Security and Medicare expenditures are accelerating now that baby boomers have begun to collect their government-financed retirement and health-care benefits. If left unchecked, these programs will push government spending to levels never seen during peacetime.

Financing this spending will require either record levels of taxation or debt. Economics teaches us that high tax rates reduce economic growth and living standards. History teaches us that high public debt aggravates economic volatility and makes a country’s financial system more prone to crisis. Congress can avoid these harmful outcomes only by taking action soon. Its first step should be to send the president’s budget proposal back with a request that he come up with a plan to rein in entitlement spending.
Nothing will happen, no meaningful reforms will be instituted, and no spending reductions will occur. After all, with the Dems demagoguing any spending cuts as akin to child murder or pushing seniors off a cliff and the GOP too timid to suffer the political backlash, the operative approach by our "leaders" in Washington will be to kick the can down the road.