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Suppose you earned $26,000 last year, but you spent $32,000 — meaning you borrowed $6,000, which you now have to pay interest on.
Most people would say that you’re not living within your means. What’s more, since you you’ve already racked up $168,000 in debt, you’ve been at this overspending thing for a while. Clearly, this isn’t sustainable.
Anybody would tell you that now is the time to cut back on your reckless spending and borrowing.
But unfortunately, this is how the federal government ran its finances last year, by spending $6,000 more than it took in in taxes for each household in America.
And the problem is only growing worse.
This week, Americans for Prosperity released a new report that details just how bad the problem is.
Here are five key takeaways from the report, which show that we need to stop overspending:
1. Our total federal debt today tops $22 trillion. Counting just publicly held debt, the federal government finds itself $15.8 trillion in the red, amounting to nearly 78% of our gross domestic product. The last time our government was in so much debt was at the height of, and shortly after, the Second World War.
There’s no reason our government should be borrowing at levels similar to those during the most significant conflict of the 20th century, especially while in a period of such prosperity.
2. This is a spending problem, not a revenue problem. Spending will soar well above its historical average and far faster than tax revenues. Tax revenues are not declining, they are growing. Like spending, taxes will grow well above historical averages. But spending grows the most – 39 percent higher as a share of the economy over the next 30 years.
Closing the gap through taxes alone would be crippling to taxpayers and the economy. Even doubling our current tax brackets on top earners — from 35% to 70%, and 37% to 74% — would generate only a little over a quarter of the revenue we need to close the budget gap. Even a value-added tax on all purchases would need to reach 17% by 2030, then double to 34% by 2048.
All of this assumes that lawmakers would be responsible enough to reject any new spending programs.
The fact remains: We can’t tax ourselves out of this problem, even at rates extremely hazardous to our economy. Congress needs to rein in spending.
3. This is a problem of mandatory spending programs, namely Medicare, Medicaid and Social Security. If tomorrow Congress decided to eliminate the Department of the Defense and, with it, the entirety of our military, we would still be running a huge deficit. The fact is, these programs are so big and grow at such a rate that cutting defense or other discretionary spending entirely would only slightly delay $1 trillion deficits.
If we want to stop overspending, we must reform our mandatory spending programs. There’s no way around this issue. Lawmakers will have to work together to make difficult choices.
4. No, we can’t just do nothing. Our mandatory spending programs are growing at an uncontrollable rate — which means that our deficit and debt are, too. Refusing to tackle this problem and praying that interest rates don’t rise has been the strategy of Congress so far.
But that’s not a solution. The Congressional Budget Office predicts that if interest rates were to rise just one percentage point, debt would reach nearly 200% of GDP by 2049. If you think today’s debt of $22 trillion is too high, just wait, because in that scenario, we would reach $132 trillion!
Congress can’t wish this problem away. It must take the lead.
5. Changing course is necessary and urgent. In just seven years the Medicare hospital trust fund will go broke, and Social Security’s will follow in another seven years. Lawmakers must change course well in advance of these looming crises.
Fortunately, there are a number of policy solutions for Social Security, Medicare, and Medicaid that will improve health care and retirement, particularly for those most in need, while also making them affordable for today’s taxpayers. Americans for Prosperity’s new spending report presents a menu of those options.