Posts tagged ‘Interest on Debt’

07/15/2011

Taxation, Not Borrowing, Is Needed

The bottom line in the U.S. Budget and National Debt debate is America desperately needs some cash, much less from borrowing, and much more from taxes. There is no realistic alternative.

The total public debt has risen at a galloping rate recently. It quadrupled during the Reagan and Bush I presidencies (1980-92). Under George W. Bush (2001-09), it increased from 5.7 to 10.7 trillion. 1 trillion was added in 2008, 1.9 in 2009, and 1.7 trillion in 2010. The aggregate national debt is now 14.46 trillion.

The tax cuts made by George W. Bush seriously damaged federal revenues. Supplemental off-budget appropriations for his wars in Iraq and Afghanistan added to the debt. Bush’s failure to fund Medicare Part D made the annual deficit and debt even worse. All of these shortfalls caused increases in the interest expense.

Instead of imposing taxes to pay for these expenditures, the government borrowed 4.6 trillion from the Social Security Trust Fund, using sums pegged for later years, and has obtained another 9.6 trillion from the public, by selling Notes and Bonds.

The debt is now at risk of growing even more, if guarantees for TARP, the Troubled Assets Relief Program, have to be honored. If the government fails to regain control of the situation, the U.S. Dollar may be devalued, and if that happens, it would cost the government even more in the form of higher interest payments.

The government historically financed operations through taxes, not borrowing. Since Ronald Reagan, however, deficit spending has been the norm. We have to get back to raising enough revenue to cover spending. We need to return to balanced budgets.

The trend line of declining tax receipts must be reversed. 45 years ago, 22% of federal revenue came from the corporate income tax, with only 2.7% from borrowing. After Reagan completed his time in office, 23 years ago, only 11% was from corporate taxes, and borrowing increased to 11%. Now, only 9% is from corporate taxes, as many large companies pay nothing at all, and borrowing is out of control. Corporate deductions, exclusions, credits, exemptions and loopholes are costing the U.S. billions every year and these abuses must be corrected.

Republicans are principally at fault, since they advocate spending for their pet projects, but consistently refuse to implement taxes to pay for them. Democrats, who remain silent, because they know they will be ruthlessly attacked if they suggest taxes as a means of balancing the budget, are also to blame. The country needs mature leadership. If we don’t get serious soon, real trouble lies ahead.

07/13/2011

Social Security is a National “Debt”

The Republicans in the Congress are once again playing games regarding the National Debt ceiling and are confusing voters as to the obligations the government must pay to avoid a default.

Forty percent (40%) of the federal budget is wasted on interest payments towards the National Debt. This interest must be paid to avoid a default. A failure to pay these long-term obligations would cause catastrophic ripple effects worldwide.

Regarding the remaining 60% of the budget, Social Security retirement and Medicare also involve obligations that must be paid. Social Security is not a discretionary spending program. People paid into Social Security all their lives. If the federal government defaulted on it, they would breach the social contract made by the people who paid into the system since 1935. In terms of an obligation, Social Security retirement is no different than the 40% of the budget devoted toward paying interest.

Republicans have advanced the argument that if we raise the Debt Ceiling to continue paying the 40% owed to our lenders, we must cut Social Security. They have it wrong. We must pay both those who lent the government money, and the Social Security recipients who paid into the system.

Someone said if we continued paying the lenders their 40%, and the Social Security recipients the benefits to which they are entitled, there would be nothing left to cut but defense. So be it. If the Republicans oppose the idea of cutting defense, they have to then have the courage to raise taxes. The problem is they think we can maintain massive defense budgets, with troops around the world, without raising taxes. They make no sense.

Since the Republicans in the House stubbornly refuse to raise taxes to pay for the wars President Bush started, they leave the country no option, but to make massive cuts in defense.