By Robert H. Linnell
The dam has been breached. Total Public Debt Outstanding has now exceeded the $6 trillion level for the first time ($6.019 trillion on 05/31/02). We have now hit the debt ceiling, imposed by Congress, of $5.95 trillion (these numbers are different by about $34 billion, small by Federal standards, since this amount is excluded from the debt ceiling because of technical factors).
In order to keep up its spending spree, Congress must raise the debt limit. The GOP controlled House voted to raise it by $750 billion (to $6.70 trillion) but the Senate last week raised it by only $450 billion to $6.4 trillion. Probably the Senate figure will prevail for the lower debt ceiling. Because of the fall elections politics has become a dominate issue in Congress. The GOP wanted to raise the debt limit high enough so that another increase would not be necessary until after the fall 2004 Presidential election whereas Democrats want to make debt an issue in the elections. From a nonpartisan point of view it does seem desirable to have a public debate about the rapidly increasing Total Public Debt and its implications for the future.
Escalating Public Debt should be a concern to all of us. Currently we enjoy very low interest rates which enables more families to own homes, buy cars and generally stimulates the weak economy by providing low cost loans to business and others. If Public Debt continues to increase at the present rate it will certainly bring on inflation and higher interest rates which will slow down the already weak economy. Unemployment is still high; the economy needs low interest rates to bring unemployment down closer to a ‘full employment” level.
Why is the debt increasing so rapidly? There are three major factors: 1). The decline in revenue from the recession; 2). The decline in revenue from the Bush tax cut of 2001 and 3). The increase in government expenditures.
Through May of this year, decline in total revenues accounted for a little more than one-half (56%) of the deficit, roughly 50-50 from tax cuts and the recession; increased expenditures account for the balance (44%). Assuming the economy will improve, tax cuts will become an increasing fraction of revenue decreases, since the tax cuts grow larger each year through 2010. In fact the latest projections show the government with deficits every year in the future, as far as we can see.
The major reason for expenditure increases is the war on terrorism. Not only is the defense budget slated to increase rapidly but other terrorist related expenditures are also expanding rapidly. The U.S. military budget is rapidly approaching 50% of total world military expenditures. At the same time domestic needs for education, health care and drug benefits, environmental needs and multitude of other problem areas are suffering budget cuts or inadequate increases. What to do?
We need to more carefully examine the military budget. The war on terrorism has become a “political” war that appears to be sustaining President Bush’s high popularity ratings. Some administration officials are admitting that the war in Afghanistan has failed to decrease the threat of terrorism, in fact it may have increased the threat by dispersing possible terrorists over a wider area. One official was quoted as saying “What we’re seeing now is a radical international Jihad that will be a potent force for many years to come”. U.S. foreign policies may be creating more terrorists than we are killing or capturing.
The tax cuts should be reexamined keeping in mind that tax cuts are phased in, becoming larger each year. First year benefits for everyone were a maximum of $300 for single taxpayers and $600 for married filing jointly: Thirty-four million taxpayers (paid Social Security and Medicare taxes only) received no tax rebates and 17 million more received less than the full amount. These are the total tax benefits that lower income taxpayers will ever receive but for higher income taxpayers the best is yet to come.
Although the law is quite complex, clearly most of the benefits go to the wealthy few, exacerbating the already increasing income gap between high income and low income citizens. Since the major tax cuts are to be phased in over future years, they could be reduced or eliminated before they become effective. Last week the Senate killed repeal of Inheritance taxes (“death taxes”) at least for this year. Senator Gramm, speaking in favor of repeal stated that families who had paid taxes, as they worked hard to build small businesses or farms, at death had to pay taxes a second time and heirs may lose the property. This is simply not true as most of the value of estates is usually capital gains, not previously taxed, and accountants who have searched the records have found very few cases of families losing property at death due to inheritance taxes. Currently less than 4,000 families pay inheritance taxes, less than 2% of all deaths.
Our debt is now increasing much faster than the economy is growing, a serious threat to our future. Americans need to consider carefully the reasons behind this emerging problem and take corrective action now before the problem becomes so large that any solution will be extremely difficult and painful.
Reproduced with permission from: www.my-oped.com.