We hit an ignominious milestone recently when the national debt crossed $39 trillion. Naturally, regular citizens have chimed in about what’s to blame, who’s at fault, what can be done, or whether it even matters.
The discussion usually takes one or more of the following shapes.
If you’re new to the conversation, just dipping your toes in for the first time, you might think we can simply cut defense spending, or eliminate “waste, fraud, and abuse.” Considering how many military bases we have around the world, that’s a legit angle.
Likewise, when you factor in the Pentagon’s numerous failed audits and run-of-the-mill household items running into the thousands of dollars, you could kill two birds with one stone.
We’re just scratching the surface here, though.
If you’re somewhat serious, in addition to those, you would do well to point out discretionary spending. Those are monies that Congress approves annually, such as farm subsidies, spending on education and housing, etc. The nearly trillion-dollar defense budget is part of it.
However, all told, such spending barely makes up a quarter of the overall budget—if that.
If you’re more serious, you could include all the aforementioned items, plus the programs on autopilot: Social Security, Medicare, and Medicaid. They are the three biggest items in the federal budget, eating up over half.
Interest on the debt, another expenditure on autopilot, recently overtook defense as the fourth largest item—but cannot be tackled directly. Only by addressing all the rest will that one be pushed down in the process.
Social Security’s financial health has been feeling the strain of an ever-growing number of beneficiaries and a declining birthrate.
By some estimates, what is in the Social Security Trust Fund will be insufficient to pay benefits within the next decade.
Regarding health insurance, its very structure is handicapped by its third-party payer nature. When consumers don’t know the actual price of the service they’re receiving, they’re less judicious in their spending.
Most Americans choose a low-deductible insurance plan where, after a visit or two to the doctor, all they pay is a $20 or $50 copay. Few have an idea of what the full menu of prices is for medical services.
At that point, general tax revenue, i.e., what comes out of your federal tax withholding, will be tapped to make up the difference.
One of the few less efficient enterprises than that is the government. That it is the genesis of Medicaid and Medicare exacerbates the problem.
Regardless, you know that you’ve encountered someone very serious about debt and deficits when he discusses attacking it at its root: the government’s ability to service it.
Investors (remember to check your 401k) will continue to buy US Treasurys if they believe Uncle Sam will continue to have the ability to pay the interest. That ability rests on the taxing power it has over productive citizens.
So, why not cut tax rates and reduce that ability?
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