Is the US debt a big deal, a really big deal, or just business as usual? For most of my life, our federal government has spent more than it received. Between 1940 and 1950, the US had accumulated debt of approximately $2 trillion. And our accumulated debt remained around $2 trillion until 1982 when it began to rise. By 1990, our national debt had grown to over $4 trillion. By 2000, we had borrowed over $7 trillion in total gross debt (money owed to ourselves and to those outside the US). And today, our debt has increased to over $14 trillion.
The US debt as measured as a percent of GDP has ranged from over 100% during WWII to over 80% in 2010. After WWII, our debt steadily dropped from a highpoint of 120% of GDP to a low point of approximately 30% in 1981 or 1982. Since the early 80s, our debt as a percent of GDP has steadily risen to today’s levels.
Until recently, only the strictest fiscal conservatives even mentioned the US debt. In a previous column, I even discussed the 2000 debate between candidate Bush and candidate Gore about their campaign pledges to pay down our nation’s debt with the projected budget surpluses that the eventual winner would enjoy once elected. History has now shown that not only did those budget surpluses not materialize, regrettably budget deficits occurred instead. Anyone who has been an elected federal officeholder, regardless of party, over the last ten years should be held accountable including President Bush and President Obama.
Many have argued for years that our US debt is not an issue. Some would even argue that some debt is good. And most of us would agree if the debt level was manageable and in a range that we could repay it without harming our economy. But the sustained level of our borrowing has now created an entirely new debate around the use of debt and getting our fiscal affairs in order.
This week’s announcement by Standard and Poor has put the US debt at the top of all issues facing our country. The S&P not only said in their rating that they are concerned about the US ability to repay, they further stated that the likelihood of Congress and the President coming together to develop a plan that gets us back on track is unlikely. And I would argue that solving our debt issue is paramount to all other issues facing our country. Being financially sound enables an entity (home, business, or government) to prioritize resource allocation. Not being financial solvent, drains limited resources from more productive uses.
How can anyone argue that borrowing 40% of every dollar we spend is prudent? If an individual or business managed their credit the way our federal government (and many state governments) has, it would be labeled a huge credit risk and face steadily increasing costs for borrowing. And the S&P is the first credible agency to warn our nationally leaders that the same fate awaits them if they refuse to course correct.
This is not a time for name-calling or to engage in the blame game. It is not a time to draw lines in the sand on ideological positions. It is a time for serious debate. It is a time for sacrificial leadership. Instead of approaching this debate from a position of what will get one reelected or which party will win the White House, we need statesmen who can put our country first. Both parties have contributed to the problem by governing on the extremes; it is time now for both parties to solve the problem by meeting in the middle.
Last week, Congressmen Paul Ryan introduced the House Republican plan for reducing our nation’s debt followed by President Obama a day or two later with his plan. The Ryan Plan calls for large cuts to spending and a plan for reforming the tax code. President Obama’s plan reduces some spending but also calls for revenue increases or increasing taxes on the wealthiest Americans. To me the answer is somewhere in the middle.
Given stories in the media during this tax season about who pays taxes and who doesn’t, I would argue that everyone should pay something. Although I have not studied the details of the Ryan plan, I like the idea of a graduated tax rate scale of 25% on those earning high incomes and staggered down to as little as 10% on earners earning less. And in reforming the tax rates, also eliminating most deductions. The proposal is not as simple as a “flat tax”, but is a start to simplifying our current complex tax code.
President Obama is correct in arguing that those who earn more should contribute more. But he must show he is also willing to make the hard choices in re-prioritizing federal spending. Governments of all levels need to do what families, small businesses, and corporate America have had to do over the last 4 years – re-prioritize what is important. This is a time for our national leaders to recalibrate federal priorities. Everything must be on the table from farm subsidies, to entitlement programs, to defense spending.
Chuck Swindoll says, “We are all faced with a series of great opportunities brilliantly disguised as impossible situations.” A strong argument could be made that the size and scope of the American debt is an impossible situation. If those we elect will really work together and develop a comprehensive approach to this problem, I believe a long-term viable solution is possible. But if political ideology and winning future elections remains the focal point of the debate, our country could find itself in dire straits.