America is the richest nation on earth. Our economy out produces all others. We enjoy the world’s highest per capita income and most lavish standard of living. Yet, incredibly, our financial well-being is at risk as never before. Profligate government spending and counter-productive government programs have combined to push America toward a financial abyss. The hard work, innovation, and downright pluck of 12 American generations is about to be frittered away. Our great national wealth is being squandered by tidal waves of wasteful spending.
This richest nation also has the highest debt load, and we are currently adding to that debt at a record pace. “Like a ticking time bomb, the national debt is an explosion waiting to happen,” scolded Tom Raum of the Associated Press last December. “It’s expanding by about $1.4 billion a day — or nearly $1 million a minute.” The national red ink now totals around $10 trillion, double that of just 8 years ago, 10 times the debt amount at the beginning of Ronald Reagan’s first term. Spending is on pace to add another $1 trillion to our encumbrance every two years, if all goes well. Should the economy slide into a prolonged recession, America’s economic heyday could well come to a sudden, permanent end.
Compounding this economic dilemma is the aging of the baby boomers, those born between 1946 and 1964. Some 76 million strong, the oldest of my generation are just now applying for Social Security benefits and will impact Medicare spending in 2011. By some estimates, America’s unfunded liabilities, owed to the boomers and others, totals a staggering $75 trillion. The rosiest economic predictions cannot account for tax revenues sufficient to come anywhere near covering such an obligation.
Currently, the national debt equals 65% of the U.S. Gross Domestic Product (GDP), an all-time high except for a brief period during World War II. David Wyss, chief economist at Standard and Poors, estimates “that the national debt will hit 350 percent of the GDP by 2050 under unchanged policy. Something has to change, because if you look at what’s going to happen to expenditures for entitlement programs after us baby boomers start to retire, at current tax rates, it doesn’t work.”
Something has to change all right. Scenarios in which our government remains solvent focus on two possible alterations: spending cuts and higher tax revenues. This is not rocket science. To keep America functioning economically, we must achieve some combination of reduced government spending coupled with higher government income. Considering the amount of waste in government spending and the vibrancy of the American economy, we can foresee a promising economic future, providing Americans have the political will to elect leaders capable of acting in the long-term best interest of the nation. Be that as it may, following are my recommendations to restore America’s financial vitality and safeguard our children’s future. Behold, the:
POMEROY PLAN FOR AMERICA’S ECONOMIC FUTURE
Reduce spending:
Privatize Social Security: Following the Chilean example, wage earners 25 years old and younger would be required to deposit a percentage of their earnings into Private Retirement Accounts. Employers would contribute dollar for dollar, imitating the current Social Security system. Wage earners participating in the new program would not be required to contribute to Social Security. That lost revenue would be offset by raising the upper limit on income subject to Social Security taxation. In other words, the rich would pay for this transition. I know I’ve argued in other posts that soaking the rich harms the economy, and I haven’t forgotten that. The plain fact is, the economy has already been harmed, put in jeopardy by political promises the government simply cannot honor. Over time, the burden on the wealthy will decrease as fewer and fewer Americans draw from Social Security. Within 70 years, the current Social Security system will be dissolved, and the rich can relax.
Privatize Medicare: Institute privately owned Retirement Medical Savings Accounts for all workers age 25 and less. These required contributions, and matching employer contributions, would be intended to provide the means to purchase private health insurance beginning at age 65, not the full amount of anticipated medical expenses. The current Medicare program must be scaled back; it cannot be sustained as currently constituted under any scenario. Benefits must be postponed and reduced, based on a sliding scale of income and net worth. Sorry, there are no easy choices with this one. In fact, Medicare is in much worse shape than Social Security.
Close the Southern Border: Illegal aliens cost $5 in government services (medical, education, welfare, legal/law enforcement/incarceration) for every $1 they pay in taxes, according to immigration reform advocates. For economic and national security reasons, closing the border, whatever the cost, will be less expense than allowing the current influx to continue. Deportation of criminal illegal immigrants will not work as long as our border remains porous. “Riverside County authorities announced Tuesday an alliance with the U.S. attorney to prosecute international gang members who have already been convicted of a violent crime and deported and returned illegally to the United States,” reported the Press-Enterprise last February. Ruined neighborhoods and over-crowded schools and prisons cannot be addressed without sealing the southern border.
Reform Immigration Policy: Institute a federal policy based on Arizona’s successful effort to combat illegal immigration. According to the Los Angeles Times, Arizona lawmakers have in recent years “barred illegal immigrants from receiving governmental services, from winning punitive damages in lawsuits and from posting bail for serious crimes. A new state law shuts down businesses that hire illegal workers…The campaign has had an effect: Illegal immigrants complain it’s impossible to find work and are leaving the state.” In addition, streamline the application process for legal immigration.
Wrap up the war efforts in Iraq and Afghanistan: Without publishing a timetable — a device certain to embolden our enemies — construct a plan to win these twin struggles and redeploy out of Iraq and Afghanistan in three years or less. If we can’t achieve success in 8 years, we never will, and an open-ended commitment of a decade or more just doesn’t make sense.
Incentivize Savings Not Waste: As I discussed in Limiting Government — Part 4 governmental budgetary units currently have built-in reasons to waste money. Managers must spend every penny of allocated funds or risk facing cuts in the coming year. This can easily be reversed by structuring a future funding schedule based on current savings. Considering the waste in government, federal expenditures could easily be cut 2% per year for several years running, saving billions of dollars.
Reduce Wasteful Defense Spending: Just this past Saturday the Press-Enterprise published this op/ed: “An annual report on defense weapons purchasing, showing a huge increase in cost overruns, should have a sobering effect on the Pentagon. Taxpayers are not getting their money’s worth, and the armed forces are being shorted equipment they need. The Pentagon should adopt reforms that will focus managers and contractors on meeting budgets and timelines.” The cost overruns totaled some 26% in 2007, amounting to billions. About half the defense budget is allocated to salaries and pensions, all of it earned and then some by our volunteer service men and women. However, re-instituting the draft would save additional billions, as would greatly reducing our military presence in Germany and Japan. Including the “off budget” costs of Iraq and Afghanistan, defense spending this year will exceed $800 billion. That’s simply too much.
Welfare Reform: Prior to the 1960s, American welfare, public and private, was dispensed to the “worthy poor,” folks who through no fault of their own fell on hard economic times. Old age, sickness, injury, death of a bread-winner, and lack of available jobs placed honorable Americans in the position of needing temporary help. Unfortunately, under LBJ’s Great Society programs, the concept of the worthy poor was abandoned in favor of “structural poverty,” the idea being that society was structured unfairly, trapping people against their will in the unrelenting grip of poverty. Thus, it became an affront to examine a welfare applicant’s ability to be self-supportive; lack of income was proof the system had failed and the applicant was worthy of assistance. As you might guess, millions of Americans took the easy route, opting for short-term gain — government handouts – at the expense of long-term financial stability and personal integrity. In the following decades, the Underclass developed, a population characterized by dependence, despair, crime, and incarceration. America must undo the damage done by its good-hearted but wrong-headed welfare policies and return to helping those who truly cannot help themselves. As proven by the welfare reforms enacted in Wisconsin and Michigan in the mid 1990s, given a choice of work or privation, folks choose work every time.
Eliminate Duplicative Programs: The federal government is a master at creating programs that are redundant, operating simultaneously but independently and therefore wasting billions. Chris Edwards identified hundreds of examples in his excellent Downsizing the Federal Government. Here’s a sample: “The GAO reports that there are 50 different programs for the homeless in eight different federal agencies, 23 programs for housing aid in four agencies, 26 programs for food and nutrition aid in six agencies, and 44 programs for employment and training services in nine agencies.” It goes on (see pages 57-59) but you get the point. They must be spending somebody else’s money. Federal programs also overlap state programs, which overlap county programs. Consolidating, coordinating, organizing, and streamlining would save billions.
Scrap NASA: OK, we loved the moon flights, but the Shuttle program, marred by two preventable tragedies, is thankfully going the way of all things in 2010. Of course, the prime directive of any bureaucracy is to remain in existence. So, NASA is ginning up a publicity campaign to promote the next manned spaceflight vehicle, Constellation. There is talk of returning to the moon (why?) and even going to Mars! Cost? Who knows, but more than is projected, you can be sure. This bolt of assurance comes from Information Week: “NASA is 33% confident it will be able to prepare the next manned spaceflight vehicle, Constellation, for flight by 2013. The agency said it is 65% confident it will be ready for a launch in 2015.” I’m 100% confident we should let a whole bunch of the NASA employees retire, then reallocate those remaining to solving problems here on terra firma — new energy sources, medical breakthroughs, better baggage handling at airports, what-have-you. Let the Chinese waste their new-found wealth bringing home moon rocks and Mars dust. Considering the cost and the problems we face at home, there are no good reasons to fund the Constellation.
Outlaw Pork: Unscrupulous lawmakers have for decades attached spending requests to unrelated appropriations in the dead of night, avoiding debate and voting records so taxpayers can hold someone accountable. Despite lots of recent negative publicity, the practice still continues albeit even more covertly, according to the New York Times New Service. Called “soft earmarks,” the new stealthier pork is just as corrupt as before, more often than not used to enhance an incumbent’s standing and buy votes. All spending requests should be contained in individual bills and subject to debate and votes. If that’s too cumbersome — good!
Privatize the Post Office: Every year the Post Office operates in the red, despite ever-increasing postage fees. Enough already. The federal government could sell Post Office assets for billions, and the private buyers would instantly improve service and cut costs. Everyone wins, especially the American taxpayer.
Increase Tax Revenue, Not Tax Rates
Make America Business-Friendly Again: Once upon a time, Americans understood that what was good for General Motors was good for the country. Nowadays, politicians see corporations as cash cows, become irate when one makes too much money, and conspire to make conducting business in the United States difficult and expensive. Then, everyone wonders why businesses go off shore. Talk about a disconnect! Following the Irish model, it’s high time America becomes business-friendly. The Irish made a few simple adjustments that really paid off, such as:
** Reducing the corporate tax rate to 12% (currently 35% in the U.S.) Hundreds of corporations have left America for Ireland. We should get them back.
** Eliminating a majority of existing regulations. Every year the federal government cranks out somewhere around 65,000 pages of new regulations. Most of the time, these new “guidelines” do not replace previous regs, but are in addition to the prior umpteen years accumulation. Companies must retain fleets of lawyers just to keep up. Some years ago, Sears announced it was no longer going to bid on government contracts due to the unintelligible language found in the theretofore unknown conglomeration of unintended justifications they knew would snare them sooner or later.
It’s a simple plan. Be nice to businesses. In turn, they will set up shop in America, providing jobs which generate happy taxpayers. In the end, everyone wins.
Sell Government Assets: The federal government is the biggest land owner in America, and it owns Amtrak, the Post Office, the Air Traffic Control system and a lot more. Selling these assets would generate cash to be sure, but Chris Edwards argues “the economic benefits would be large as newly private industries such as postal services boosted productivity and improved performance to the benefit of American consumers.”
Lease more oil fields and shale oil land: Debra Saunders hit the nail on the head today in my beloved Press-Enterprise. “Last week,” said Ms. Saunders, “American truckers staged protests against the rising cost of diesel fuel while members of the U.S. House of Representatives competed to see who could do the best job of hectoring oil-company executives — on camera — about the high price of gasoline. Also last week, the House voted to double the size of two national maritime sanctuaries off the Northern California coast, which are now permanently protected from off-shore oil drilling…It’s a mystery of modern life that educated voters can grouse about the high price of gasoline, yet see no nexus between rising prices and dwindling domestic supply.” Bingo. Part of going all-out to be energy independent is drilling and mining our enormous oil reserves. The income to the federal government, our main point here, would be substantial.
Other Good Ideas To Help America Grow:
Tort Reform: Ask any doctor and you’ll hear one big reason for the high cost of medical care: malpractice insurance. Doctors pay $100,000 a year or more to protect themselves from the John Edwards of this world. Class action lawsuits are another example of the legal profession gone wild. Lawyers have sued entire industries out of the country. Football helmet manufacturers are an example, victimized by numerous and costly suits although it is well known that “spearing,” using the top of one’s head to initiate contact, is the major cause of spinal cord injuries among football players. There is a way to eliminate frivolous lawsuits while maintaining the ability of truly wronged patients and consumers to be made whole. Reigning in the lawyers will save consumers billions.
Permit Nuclear, Oil Refining, and Hydro-electric Expansion: Being energy dependent when we don’t have to be is just stupid, and dangerous in this day and age. America has not permitted an oil refinery or nuclear power plant in over 25 years. We built the last major dam in 1966. Going full-out with nuclear, oil, and water power will help the economy by dramatically reducing energy costs, a major factor in the recent increases in food and transportation expense. Lower energy costs will help the economy expand, providing jobs and tax revenue to the federal government. Of course, while we are pursuing atom, oil, and water power, America should do everything prudent to develop wind, solar, and any other forms of renewable energy available.
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The whole point of increasing the supply of energy, and thereby reducing its cost, is to spur consistent economic growth, vitally important to every American’s financial well-being. The same can be said for Tort Reform, Selling Government Assets, and becoming Business-Friendly. Putting all or most of these reforms in place doesn’t hurt anyone, and helps everyone. Jobs are created, and tax revenue is generated in quantities sufficient for the government to carry out its Constitutionally mandated duties. Our defense posture can remain strong and we can help the truly needy among us.
Considering the enormous wealth, creative genius, and economic activity that has characterized America for multiplied decades, supplying our governments with sufficient resources should be easily achievable. In fact, as recently as the late 1990s, “it actually looked like the national debt could be paid off –in full [the debt then totaled about $5.5 trillion]…the bipartisan Congressional Budget Office projected a surplus of $5.6 trillion over ten years — and calculated the debt would be paid off as early as 2006,” according to the Associated Press. Of course, the opportunity for the country to be made whole has been swept away with war and domestic spending. Nevertheless, if we get serious about cost control and business expansion, America can regain her solid financial footing.
Therein lies a warning. Our current crop of political leaders are prone to spend money whether it’s there or not, and whether or not the spending is necessary and proper. Assuming our government went on a cost-cutting and business-expansion binge which generated heaps of surplus tax revenue, there is no guarantee the spendthrifts in Washington wouldn’t spend the surplus and more.
This brings up a concern about John McCain. He is known as a deficit hawk, meaning he is against borrowing to spend. That’s all well and good, but a deficit hawk is not, by definition, against spending willy-nilly if the money is there. This is exactly the approach California took with the huge surpluses enjoyed in the Golden State ten years or so ago. Instead of seeing a chance to return money to individuals and businesses, further stoking private spending and economic growth, the dolts in Sacramento spent like there was no tomorrow, wiping out the surplus and, when the economy slowed, running up huge deficits. Now, we’re told they want to raise taxes, the very thing that will drive more businesses and residents out of California. National leaders should learn from California’s fiscal folly.
The kind of political leaders needed to right our economic ship are those consistently adhering to conservative principles. Wasteful spending is always a bad idea, whether or not money is available. Limited government is always desirable, no matter the emergency. Most of all, average Americans must elect politicians who are consistently fiscally conservative, and demand accountability.
Something has to change.
Posted by Jerry Pomeroy in Budgets, Economics, Energy, Politics