The National Debt: Young Americans Are Inheriting a Sinking Ship

by J. Wesley Fox - Date: 2010-07-12 - Word Count: 1137 Share This!

The greatest fundamental weakness of the United States of America is its national debt. Debt weighs a country down economically and has been a contributing factor in the fall of empires throughout history. After the American Revolution, the Founders were insistent that the our new country pay off its debts from the war and maintain a frugal fiscal policy in order to gain trust among foreign creditors. Today, we are getting dangerously close to destroying that trust. To make matters worse, the current leadership in Washington has no plans for getting us out of debt, seemingly content with handing it off to the next generation. If the United States does not do something about this weakness, Young Americans will be left with a bankrupt country and a broken economy.

There are two ways to measure the national debt, in absolute terms and in terms of its size relative to the gross domestic product (GDP). The GDP is value of the total goods and services produced in a country in a given year, or for the sake of simplicity, the income of the entire country (before taxes). Experts estimate the United States GDP will be $15.4 trillion in 2011, while the national debt is expected to hit $15.6 trillion! The debt will be equal to 101% of the GDP for the first time since World War 2!

The U.S. Government borrows money through issuing treasury securities (i.e. treasury bonds) to investors, or by simply taking it from themselves like tapping the Social Security Trust Fund. Public debt, which counts only the debt from treasury securities, is rising so rapidly it will soon to become one of the highest in the world. In just a few years, we will be one of the top 15 debtor countries, joining others like Zimbabwe, Sudan, Lebanon, Greece, and Nicaragua.

Country Public Debt % of GDPIncrease from previous year:

-United States 52.9% (2009 est.)13%

-India 59.6% (2009 est.)2%

-Brazil 46.8% (2009 est.)8%

-Indonesia 29.8% (2009 est.)0.5%

-People's Republic of China 18.2% (2009 est.)3%

-Russia 6.9% (2009 est.)0.4%

-Saudi Arabia 20.3% (2009 est.)1%

It is also alarming to many that a significant portion of the public debt is held by foreign countries. China and Russia alone hold roughly $1 trillion of U.S. debt. A total of $3.8 trillion (over a third of the public debt) is held by foreign countries. It weakens the United States to have such large debts to foreign countries, particularly those that are rivals.

Not only has the national debt reached an immense size, it is also growing at an unprecedented rate. In the last two years, the U.S. Government has added over $2 trillion to the debt. Future budget plans, proposed by President Obama, project that the debt will grow as much as $10 trillion in the next ten years! The interest payments on a debt that size are staggering and likely to cripple the Government in the near future. The U.S. Government currently pays around $200 billion in net interest per year. Under Obama's budget plan, interest payments could explode to $768 billion in 2020, more than the cost of the entire U.S. military!

So why is it so difficult for politicians to balance the budget? Pork barrel spending, ineffective government programs and other wasteful spending is part of the problem but not the whole story. Most of government spending is on entitlement programs such as Social Security, Medicare (healthcare for seniors) and Medicaid (healthcare for the poor and indigent). Over the next several decades the costs of these programs will explode, crowding out spending on other programs such as defense. Entitlement programs will eat up the entire budget by 2050 if nothing is done.

How do we avoid the oncoming disaster? Politicians often talk about spending freezes in discretionary spending, but this is a drop in the bucket. Cuts and freezes do not affect entitlement programs. Democrats often argue that repealing the Bush tax cuts will help balance the budget but this is false. Increasing taxes will do very little to cut the deficit. In fact, raising taxes only works if the tax hikes are dramatic. To pay for the entitlement programs in the coming decades, income tax rates would have to be doubled on everyone. Corporate taxes, which are already second highest in the developed world, would have to be increased from 35% to 66%. If the U.S. Government were to enact these tax hikes, economic activity would come to a screeching halt. Unemployment would jump and the cost of welfare and entitlement programs would increase further.

The only way to balance the budget and return entitlement programs to solvency is to reform them NOW. Fortunately, these programs do not need major cuts or complete overhaul to make them solvent. For example, Rep. Paul Ryan of Wisconsin has proposed reforms that would make the big three programs solvent. For Social Security his plan would (1) allow workers to invest FICA payroll taxes in personal savings accounts; (2) change benefit payouts to track price averages not wage averages; and (3) gradually increasing the retirement age. All this would be done while leaving the current system intact for those older than 55 years, who have planned their lives around the current system. This is only one example of a reform proposal but it is compelling evidence that reform can be done without sacrificing benefits to current seniors.

Reforming entitlement programs will help with our long term problems but there is plenty we can do in the short term. By cutting out programs that are not Constitutionally authorized and making reasonable cuts in other areas, as much as $300 billion could be cut from our discretionary spending (which accounts for 37% of all spending). In addition, the budget process must be reformed to prevent the Government from making these same mistakes in the future. A balanced budget amendment could place statutory limits on government spending, making it illegal to build up such massive debt. Finally, eliminating earmarks from the budget will go a long way in restoring the public trust and overall transparency in the process.

Balancing the budget and paying down the national debt will be difficult to accomplish but it is possible. Politicians often make excuses and argue that we can't do it without harming the millions of Americans reliant on entitlement and welfare programs. Strong and intelligent leaders, like Rep. Ryan, have shown that these problems can be solved without causing harm.

Restore America's Legacy promotes responsible entitlement reforms such as those proposed by Rep. Ryan, cuts to discretionary spending, a balanced budget amendment, and eliminating earmarks. These measures will help balance the budget, reduce the national debt, and restore sanity to the budget process. It will ensure Young Americans will not be spending most of their adult lives paying outrageous taxes because of the irresponsible decisions of the current generation in power. Young Americans will inherit a country that is financially and economically strong.

J. Wesley Fox is the Chairman of Restore America's Legacy PAC. He is a recent graduate of DePaul University College of Law and has been active in local and national politics for several years. He currently lives in New Jersey after growing up in the Chicago suburbs.www.restoreamericaslegacy.comn
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