By Richard Larsen
Published – Idaho State Journal, 11/27/11
Black Friday occurs the day after Thanksgiving, and
signifies the day when most retailers go into the “black,” or profitability,
for the year. For understandable reasons, it’s a day highly anticipated by
retailers, and by consumers, for there are typically “killer deals” offered to
draw traffic into the stores.
If national governments weren’t so dysfunctional, every
nation would have a Black Friday equivalent, when revenue would catch up with
expenditures, and there would be no budgetary deficit. European countries right
now have to be wishing they could celebrate such a day, as several European
countries are currently undergoing the equivalent of a fiscal colonoscopy being
by exogenous institutions, the European Union and the European Central Bank, because
they cannot get a handle on government spending. Many European nations have
expenditures far outpacing their tax revenue, but the most pressing to the EU now
are Greece and Italy. Their appetite for spending has pressed the EU to the
verge of collapse.
Here at home, we find our own country sprinting toward the
precipice of fiscal collapse with yearly spending at $3.7 trillion exceeding tax
receipts of $2.2 trillion by 60%. We’re just $500 billion short of spending
twice as much as we receive in tax revenues. In July, congress infamously
raised the debt ceiling from $14 trillion, and in just four months, we’ve already
surpassed $15 trillion. Anyone with any cognitive capacity can clearly see this
is unsustainable. At what point such debt causes financial implosion is
unclear.
But we may be getting the signals that we’re not that far
away. China is the number one buyer of U.S. debt, in the form of bonds, notes,
and bills. This week, after the “Super Committee” of twelve congressmen and
senators was unable to reach any compromise on reducing spending, Xinhua, the
official state news source had some unusually harsh words for our lawmakers. "Washington's
political elites ... are obligated to muster the courage to defuse the ticking
debt bomb and start to show the world they have the wisdom and determination
not to further jeopardize the fragile global economic recovery," Xinhua
said. I’m inclined to think they
chose their words carefully, especially in reference to “the ticking debt
bomb.” Implosion could well occur when the Chinese are no longer willing to
take the risk associated with buying our debt.
And no wonder they’re so concerned. Just four years ago our
total debt (not counting unfunded entitlements) was at $7.2 trillion, with a
budget of $2.5 trillion and a deficit of $252 billion. Even while fighting two
wars, the projections indicated the deficit would be erased by 2011. Now, at
$15 trillion of debt, a yearly budget of $3.7, and a deficit of $1.4 trillion,
our “leaders” have dug a fiscal hole so deep it is questionable if we can ever
climb out of it.
Just since 2008, the five largest growth areas in spending
have added significantly to the total debt and the yearly deficit. Spending has increased by 30% in
federal pensions; 50% in health care; 30% in national defense; 60% in federal
welfare; and 50% in discretionary spending. And we should not forget that former
Speaker Nancy Pelosi failed to even pass a budget for two years, as required by
law. That's like giving a spend-thrift spouse a no-limit credit card and telling
her or him to go buy all the influence and power a limitless credit line can
buy!
Yet with all that spending, the super committee couldn’t
come up with $1.2 trillion savings over the next ten years. The Congressional
Budget Office projects from 2012-2021 government spending will total $46.05
trillion. That means they couldn’t agree on a nickels worth of spending cuts!
Tax increases are economically unviable in our present
condition. Peer reviewed research by former head of Obama’s Council of Economic
Advisors, Christina Romer, illustrates how an exogenous tax increase of 1% of
GDP reduces real GDP by 2-3%. With our real GDP at under 3%, we can’t afford
tax increases to reduce economic growth any more. We need jobs more than
anything, and a contracting economy is decimating to job growth.
According to IRS data, 1.93% of Americans make over $250K
per year. If we taxed 100% of their income, we could generate $1.41 trillion,
which would be enough to cover the deficit. But that would be fiscal suicide,
for that revenue would be nonexistent for all future years.
It wasn't lack of revenue that got us into the problem we're
now in, it was a lack of discipline on spending. If the country is fiscally
salvageable, it will come from a serious attempt to unwind some of the recent spending
increases, and then look at potential revenue "enhancements" to make
up some of the difference if necessary. We cannot tax our way out of the
problem without destroying job growth, but we can, with discipline and some
backbone, cut our way out of it.