By William Isaac for Forbes
There are several impediments to spending and investment in the U.S. and thus to a sustainable economic recovery and job growth. Loss of confidence in our political system is at the top of my list.
Congressional Republicans and the Obama Administration just reached a deal to extend the Bush tax cuts for two years, provide a variety of other tax breaks, extend unemployment benefits for another 13 months, and add other spending programs. The cost is estimated to be nearly a trillion dollars spread over two years, all of which will be added to the Federal deficit.
The trillion dollar tax and spend deal comes within days of the report by the National Commission on Fiscal Responsibility and Reform (established by President Obama) calling on all citizens to make sacrifices to help reduce the national debt.
The Commission tells us that the fiscal crisis is the greatest threat to the economic and political stability in the U.S. Admiral Michael Mullen, Chairman of the Joint Chiefs of Staff, declares the nation’s debt the most significant threat to national security.
Federal spending is out of control, is sapping our nation’s strength and standing throughout the world, and is stealing our children’s and grandchildren’s futures. According to the Congressional Budget Office, the Federal debt held by the public (which does not include social security obligations) was 35 percent of GDP in 2000, 62 percent in the second quarter of 2010, and is expected to reach 70 percent in 2011. The CBO estimates this could climb to 200 percent by 2040 if we do not act decisively to prevent it.
The Fiscal Commission proposes spending cuts and tax increases designed to reduce the deficit to 2.3 percent of GDP by 2015 and to reduce the Federal debt to 40% of GDP by 2040. The Commission would also overhaul the tax code and cap government revenue at 21% of GDP.
Most, if not all, politicians profess to want to resolve the fiscal crisis but few are willing to endorse the sacrifices necessary to do so. Generally, Democrats oppose spending cuts and support tax increases on the “wealthy,” while Republicans support spending cuts and oppose tax increases.
The trillion dollar deal on extending tax cuts and unemployment benefits is Exhibit A in the case against the politicians in DC. Republicans want lower taxes, while Democrats want more spending – so they decided to do both.
It’s almost beyond comprehension that our political leaders would deem it appropriate to add another trillion dollars to an already staggering Federal debt. It’s as if the historic election of November 2, 2010 never happened.
Don’t get me wrong. I’m alright with extending the Bush tax cuts temporarily in view of the fragile economic recovery. I also believe we should offer more help to those in need during these difficult times, although it seems more appropriate to pay people to work on government financed projects or to enter training programs than to pay them for not working.
But surely our leaders could go through the bloated Federal budget and indentify revenue enhancements and spending cuts to offset a good portion of the cost of their deal. That’s what any responsible business or family would do.
The financial crisis is the result of excessive borrowing and leverage in both the public and private sectors. The solution is to wind down the leverage over time, not to increase it.
Resolving the fiscal crisis requires a fundamental attitude shift by citizens and politicians away from feeling entitled to instant gratification with little or no sacrifice. The objective must be to distribute the sacrifice as broadly and fairly as possible, keeping firmly in mind the need to foster economic growth and job creation.
We are afraid of excessive debt, taxes, spending, monetary expansion, and inflation. We are not about to spend or invest until our leaders demonstrate both that they understand the severity of the fiscal crisis facing America and that they have the backbone to get it firmly under control. The unfunded trillion dollar deal is a big step in the wrong direction.