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My View: Government debt is a moral failure

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  • | 4:00 a.m. August 10, 2011
  • Sarasota
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The budget deal last week that averted a possible default by the federal government completely dodged the underlying monster that must be slain before it slays us.

We have been living beyond our means for a long time.

Every level of government is bigger than we can afford and still maintain a standard of living beyond Argentina. That reality clearly has not set in, not in Washington, Tallahassee or locally.

Florida and her cities and counties must balance their budget every year, so pushing off tough decisions is not an option. Yet even in an economy that in reality is in a four-year recession, Manatee County schools increased their taxes, and Manatee County jacked up impact fees and has tentatively approved a property tax increase.

State College of Florida increased tuition 8% to cover spiraling expenses, yet planned to buy a $71,000 Cadillac SUV for officials (replacing a 2008 Lexus), that is, until the Bradenton Herald outed them.

Gov. Rick Scott is trying to ratchet down state government but meeting resistance at every level and from  every party, including his own. His success so far has been limited, but is a start.

Washington, D.C., however, is rapidly destroying our children’s hopes for prosperity, because the compass for the majority of politicians in both parties points toward what is right for the next election, not right for the future of the United States.

The numbers tell the story, and they are not the numbers you read about. The media always tend to tell the horse-race story, who is winning and the he-said-she-said of the moment, without providing ongoing factual context that could change the minds of Americans. As a result, more and more Americans simply get frustrated and call down a pox on both parties.

The $14.3 trillion debt ($14.4 trillion, $14.5 trillion, depending on what day you read this) is the one looking in the rearview mirror, the one already outstanding to creditors, the one yet to be paid off. All last week’s deal did was lift the cap to borrow more from our children to pay today’s bills, not the debt. The cuts are incredibly tiny, and somehow you just know Congress will find a way to slither out of them.

The institution containing our U.S. senators and representatives is incapable of controlling itself.

The real debt is what we have by law promised to pay in the future minus the revenues we expect in the future. Boston University economist Laurence Kotlikoff put that number at $211 trillion. It is called the fiscal gap, the net present value of all future expenses minus all future revenue.

That $211 trillion was not on the table in these debates, because it includes the enormous financial and political liabilities of Social Security and Medicare payments. That means senior citizens. Senior citizens are organized, and they vote. Re-election trumps future hopes. Moral failure.

There are three ways to deal with the fiscal gap between future revenues and expenses: Raise revenues, cut spending or a combination of both.

• Raising revenues. Theoretically this could be accomplished through economic growth. Unfortunately, economic growth is included in Kotlikoff’s assumptions already. So that gap exists with economic growth.

The other revenue source is to increase taxes. The brazenly political way to do that is increase taxes on the rich — the majority voting to take from the minority — who already pay far more than their fair share. The top 1% of income earners pay nearly 40% of all income taxes. But beyond that, there just aren’t enough rich with enough money to make a dent in the gap.

According to the IRS, about 2% of U.S. households have an income of $250,000 and above. If Congress taxes 100% of income above that, it would raise $1.4 trillion. One time. People don’t work for free.

Spurious tax increases on corporate jets and yachts would raise laughably paltry amounts, if anything, and hurt workers in those industries as a luxury tax did in the 1990s. That is heinous politicking to the ignorant. Immoral.

Corporate taxes are already some of the highest in the Western world. But if we took 100% of all the profits of the Fortune 500 companies, we would raise $400 billion. One time. Companies don’t work for free, either.

Without ever making the argument that tax increases hurt economic growth, which itself is an economic truism on which both parties largely agree, it becomes obvious that increasing taxes on the rich will not close the gap in any appreciable way. It only helps re-election chances. Moral failure.

There is only one place to get the kinds of money that the tax-increasers want. The middle class. En masse, that is where most of the country’s wealth is. And even the most fervent tax-raiser will not propose broad middle-class tax hikes because that is a sure method to losing re-election.

There is no way to slice it. Revenues cannot solve the fiscal gap.

• Cutting spending. This is the heart of the matter. To win political points and the next election, Congress and presidents from both parties have for decades promised huge entitlements they have not funded. Entitlements they cannot fund because they are simply too big.

The problem here is moral, also. And not just in Congress but among senior citizens. They demand their current level of services, including built-in increases even though it comes on the backs of their children and grandchildren. There is no nice way to say it.

I wrote a column about a decade ago saying the Greatest Generation was becoming the Most Selfish Generation because it demands entitlements far above what it paid for. In our community, I was angrily hooted for that. But has it not been borne out? And we can be confident that my generation of boomers will far surpass our parents in selfish demands from others. And that will be our ruin. And our children’s.

We probably have already reached the point at which senior citizens and those nearing their benefits have the numeric clout to vote themselves representatives who will give them benefits at the destruction of their own children.

There is one glimmer of hope: A balanced budget amendment to the U.S. Constitution that would allow for deficits only in times of emergency decided by some supermajority of Congress.

The federal government must have a legal blockade on spending, because Congress is indisputably incapable of stopping.

Our highest political leadership is like a raging alcoholic with a bottle of Jack Daniels climbing into his Cadillac SUV. The bottle must be taken forcibly and the drunk sent to rehab before he kills himself and others.

A coalition of thinking, productive Americans needs to force a dramatic re-evaluation of government’s role — one that is affordable now and for generations. That will be needed for any chance of a constitutional amendment, for a sharp change of D.C. leadership and for hope.


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