Warning bells are ringing and the red light is flashing on the dashboard of this country's long range economic well-being. This year, the Obama administration forecasts that our national debt will rise to 64% of our gross domestic product (GDP). Other experts project that our national debt will zoom to over 103% of the gross domestic product (GDP) by 2015 under the current spending spree of the Obama administration. This compares to our national debt being at nearly 40% of GDP at the end of President George W. Bush's term. Why should this fact be sounding warning bells and flashing a red light? Look at Greece.
Many economists believe that as long as the national debt to GDP ratio remains in the 30% to 90% range, a country's economy can grow with modest adverse impact on its growth from higher debt. However, once a country's debt to GDP reaches 90% plus, you begin to drastically harm economic growth. Greece's national debt to GDP ratio is estimated to be at 108%. Greece's overspending and running up of national debt over the course of many years has brought it to the brink of bankruptcy. To improve/grow its economy, Greece must now implement a plan to dramatically cut its budget. This will result in decreased services and "entitlements" on which the average Greek citizen has come to rely. This is why there are riots in the streets- people do not want to see their standard of living reduced due to decreased government spending. What they need to realize is that failure to reduce the national debt will lead to bankruptcy and a lower standard of living in any event, maybe lower than with spending cuts.
As an editorial said today: "Greece needs a debt restructuring and wholesale reforms that reduces the state's share of GDP and promote economic growth. As for the rest of Europe and the U.S., Greece's predicament is a warning to stop the tax and spending binge before it leads to a crisis." "The Greek Bailout Flop," Wall Street Journal, Wednesday, May 05, 2010, page A20. Moody's Investment Services issued a warning earlier this year that the U.S. could lose its AAA debt rating if federal deficits and the national debt continue to grow.
How should we heed these warnings?
First, what the Congress should be doing right now (and what it should have been doing in 2009) is establishing a fiscally realistic, balanced and sustainable budget that keeps revenues and expenditures in line and which eventually retires federal debt. That process requires the examination of all federal programs to determine the purpose of each program, whether that purpose is proper for the federal government to pursue and if it is producing the desired result.
Congress should be focusing primarily on proposals that would get the budget in order, as described above. The bills we should be hearing and reading about in the daily news are ones such as Congressman Paul Ryan's "The Road Map for America's Future" as first proposed in 2008. Or, the "SOS: Stop Over-Spending Act"(s) of 2006, 2007 and 2008 as proposed by Senators Judd Gregg and Mitch McConnell and up to twenty-two other Republican senators. These types of bills are more important now than the recently passed health care reform, proposed climate caps or so called stimulus plans. The American people understand the concept that we should get our finances in order before taking on new, ambitious projects.
Second, I support Congressman Ryan's proposal to create jobs and a healthy economy by adopting a flat income tax to replace the complicated current income tax; the elimination of taxes on capital gains, interest and dividends; replacing the corporate income tax with a business consumption tax; and capping federal revenue produced from the federal income tax and business consumption tax at nineteen (19) percent of GDP. For more details on Ryan's plan, go to www.roadmap.republican.budget.house.gov.
The combination of curtailing and reducing federal expenditures with adoption of the tax reforms outlined above will spur investment in and the creation of new jobs. It will, if faithfully pursued as policy, put us on the path to not only balancing the budget, but also gradually reducing our national debt.
Americans will have greater confidence in and actually experience a long term economic recovery if the above plan is pursued. Greece should serve as a warning of what will happen here in five years if we do not adopt such a plan soon. We either make some painful sacrifices now in federal spending, or face more dramatic sacrifices and pain in the future.
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