America is essentially bankrupt. While my numbers aren’t accurate they are close enough to explain why this is so in a clear manner.
America brings in about $500 billion a year in tax revenue. They are spending about $1.5 trillion a year. This means they have been running a deficit of $1 trillion a year.
Our current official debt is around $14 trillion. Our unofficial debt is debt America is not contractually obligated to pay and includes such items as Social Security, Medicare, Medicaid, Fannie Mae, and Freddie Mac. When we add in our unofficial debt, the debt skyrockets to $70 trillion to $120 trillion, depending on whose calculations you wish to use.
If we tripled taxes we could at least balance our budget and quit adding to our deficit. Obviously raising taxes is not going to be the solution. Cutting spending is the only way to solve this dilemma.
But we have to cut a lot. Look at the numbers. Even if we raised taxes by 50% and raised our revenues to $750 billion, we would still have to cut the budget by half in order to balance it. Of course if we raised taxes by 50% this would cripple the economy and we wouldn’t collect $750 billion dollars anyway due to people earning less money.
Also even if we follow this route, what happens if interest rates rise? Currently about 40% of out budget expenses are to pay interest on our debt. Yet our rate is only 0.65% on all of our debt as we have been moving from long-term Treasury bills to shorter term ones where the Fed has set the rate at close to 0%. If rates only rise ½ of 1 percent, we would be looking at another $450 billion dollars of expenses which would then be added to our debt.
No, the numbers are clear. The only way to solve this crisis is to cut spending and to cut it drastically. Therefore I don’t even want to get involved in the argument as to whether the rich in this country should pay more taxes or not. It’s meaningless.
We need to cut our budget by 75% so that we can spend $125 billion a year or so in paying down our debt. Defense spending represents the major portion of our budget and we can’t continue to ignore that as an uncuttable expense. Even if we cut defense spending by two thirds, we would still spend more on defense than any other country in the world. If we have to cut 75%, no program can be off limits.
On top of that, we need to address Social Security and Medicare. Fannie Mae and Freddie Mac, the government mortgage arms, should be closed and eliminated. Medicaid is going to need a serious overhaul if not a flat elimination.
It isn’t that these programs aren’t good. It’s that we can’t afford them.
I understand the issue of spending cuts attacking the poor and the elderly. After all they are the ones receiving most government benefits. But they are going to lose out either way. If America goes bankrupt, those payments will stop any way. Wouldn’t it be better to have an orderly decline as opposed to a chaotic one? And at least preserve the integrity of the United States as a country that pays their bills?
Does America have a chance to solve these problems? I would say no. Just from reading and talking to people, I would say the vast majority of Americans do not have a clue as to how bad our economic situation is. Therefore they have been unwilling to support the drastic spending cuts that are needed.
Apparently our politicians are not even aware of it. The cuts proposed by President Obama are not near deep enough to ward off this crisis. President Obama has proposed spending cuts of $4 trillion over 12 years. That is only $300 billion a year. So our spending gets reduced to $1.2 trillion while we continue to take in only $500 billion. Not enough!
The cuts proposed by the Republicans are better, but also not deep enough. They have proposed $6 trillion over 10 years. Or $600 billion a year. This would lower our spending to $900 billion while we are only taking in $500 billion. Not enough!
Seriously, we need to cut 75% of our spending.
Wake up America! We’re in trouble.
