The United States has a lot of fiscal problems. We are carrying far too much debt. We are facing far too many long-term entitlement obligations. We can’t fund existing government operations without constant borrowing.
Most of the time, entitlement programs alone eat up most or all of the tax receipts taken in by the Treasury, leaving short-term debt to fund pretty much everything else.
This is an insane way to run any operation. Any CEO who did this for more than a year would probably be fired. The fact that the federal government has done it for decades tells you just how divorced from reality the political class is.
One of the reasons Donald Trump is about to become our president is that he knows this is insane and can’t continue. Fixing it won’t be done in a day, and any effort to do so will encounter major resistance from the Washington establishment. But failure to do it will jeopardize the long-term future of our nation. You can’t go $20 trillion into debt, pretend nothing’s wrong, and just keep borrowing more.
So how to fix it?
The president-elect and his advisors have plenty of proposals they’re considering, and they don’t need another detailed one from me, but I want to suggest that two priorities should rule over all others in getting the nation back on the right fiscal track.
These priorities are:
Economic growth
Cutting federal spending
First let me deal with growth. Debt is never a good thing, but it can be manageable when you don’t owe too much as a ratio compared with your overall productivity. The reason it’s such a big problem that we’ve added $10 trillion in new debt during the Obama presidency is that GDP growth hasn’t kept pace.
The nation’s GDP in 2015 was just under $18 trillion. That’s less than the total national debt, and it’s lagging behind because Obama-era policies have given us average annual GDP growth of less than 2.0 percent. That is simply a terrible growth record. The worst record following a recession in more than a century. And it’s because Obama favors high taxes and heavy regulation, and because his Justice Department and regulatory agencies have waged an eight-year-long assault on business.
If we could achieve consistent growth of around 4.0 percent, we would have a much larger base upon which to collect taxes, and we wouldn’t need to raise rates. We would be creating more wealth, which we could then decide how to put to work to help deal with our debt and the funding of legitimate functions of the federal government.
When I proposed my 9-9-9 tax plan, economist Steve Moore (who is now part of the Trump team) said it would be “rocket fuel for the economy.” That was the idea. To remove the impediments to growth that had been created by federal policy. This needs to be the Trump priority as he begins his presidency.
Support Canada Free Press
Now, about federal spending: You always hear arguments that we can’t possibly do without this or that. People need their social services. We need regulatory oversight. We need everything. But people forget just how many levels of government there are in this country. We have cities. We have counties. We have states. They all have services of their own. And an awful lot of tax money is collected by the federal government and then “shared” back to the states, counties and cities.
The founders intended this republic to be a loose union of sovereign states who would largely handle their own problems, while the federal government handled national defense and a few other key functions. Over time the federal role in just about everything has exploded, even as the states continue to maintain their own agencies and initiatives.
The federal government needs to take a fresh look at the things it’s doing, and seriously question whether some of its functions wouldn’t be better handled at the state or local level – where elected officials are closer to the citizens and more accountable to them.
We need to restructure entitlements too. Many other nations handle the priorities of Social Security, Medicare and Medicaid in more cost-effective ways that involve a stronger role for the private sector. The United States can’t resist that course forever. But we should at least be able to start by eliminating unnecessary federal functions that states and local governments can handle perfectly well on their own.
When you’re in fiscal straits, you have to take in more and spend less. The Democrats’ answer is always to take in more, and always to do this by raising tax rates. But that’s the most counterproductive way you can do it. A company with falling sales can’t make more money by raising its prices. All that will do is cause fewer people to buy. And when you’re economy isn’t growing, you can’t take in more tax revenue by raising tax rates. You need to be creating more wealth in the private sector, and confiscating less of it to spend on things that don’t really help anyone but serve the agendas of politicians.
The bottom line is that we need to unleash the power of the productive private sector. They will generate the wealth we need to solve the nation’s problems, while creating more opportunity for more people, so there aren’t as many who need government help.
I’ll leave the particulars to the Trump economic team, but these need to be the priorities.
