At the center of the recent debt ceiling debate in Congress were spending cuts and taxes. Democrats were looking for reductions in spending as well as increases in tax revenues to help pay down the country’s increasingly large debt. Republicans were seeking deeper spending cuts and no changes to the current tax rates. And neither party was particularly fond of cuts to entitlements because they are unpopular with older Americans and those are the people who vote. With the country on the precipice of default, an agreement was reached to increase the debt ceiling with reductions in government spending, no tax increases and no cuts to entitlements.
No matter what political party you tend to agree with, one thing is evidently clear, tax dollars just don’t go as far as they used to. This sounds a lot like a lesson from grandpa, but it becomes clear we are on a dangerous financial course when you take a closer look at what that means.
According to information available at the Government Accountability Office, by 2020, without significant changes, 89% of the tax revenue collected by the federal government annually will go to pay for Social Security (28.4%), interest on debt payments (24%), Medicare (21.3%), and Medicaid (15.3%). That means that only the remaining 11% of tax revenue collected will be available to pay for everything else, including education, infrastructure, and even national security.
Wow, just wow.
Putting that into perspective, 11% of the 2010 federal tax revenue of $2.16 trillion would be around $235 billion. Of course that sounds like a lot to you and I, but the spending for the wars in Iraq and Afghanistan ($170 billion) plus what we spent here on homeland security ($44 billion) in 2010 totals $214 billion. That leaves just $11 billion to cover things like the $667 billion in military spending (excluding the wars and security efforts mentioned above), and spending by the Departments of Agriculture ($129 billion), Labor ($173 billion) or Transportation ($78 billion). That doesn’t cut it and this list doesn’t even include things like national parks, the FBI, food safety, environmental protection, education, and the list goes on.
Without intervention, by 2040 the federal government will only be able to pay the interest on the debt and most of Social Security. Everything else would require additional borrowing if we continue to chart the same course. Tax revenues should go toward the provision of government services and saving for a rainy day like recessions and times of economic stress instead of squandered on interest payments. That’s not how I operate my finances and thats not how the country should either.
It’s gut check time America, in case you haven’t noticed, everyone is for small government and low taxes and for the government to continue to provide the services they are accustomed to, but there is one little problem called “math”, and the numbers simply don’t add up. Higher taxes, less spending, and reduced entitlements is the only way out. Let’s get our act together before we are essentially handing over a quarter of what we earn each month to China, Japan, and the EU, the only way out is to get real and pay ourselves first.
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