Happy New Year!
Well, maybe it’s not so happy, and certainly, most people don’t realize this, but October 1st marks the beginning of the federal government’s new fiscal year. What does this mean? That the federal government’s timing for taking stock of its yearly expenditures begins on October 1st, whereas the calendar year begins on January 1st for the rest of us.
To mark this occasion, James Harrigan and Antony Davies recently published a timely piece in the Washington Times entitled, “Uncle Sam’s New (Fiscal) Year Resolutions,” Davies and Harrigan share some interesting data about precisely who is (and isn’t) funding the operations of the United States federal government.
As they note:
Fifty-five percent of federal spending occurs automatically. This “mandatory spending,” on Social Security, Medicare, Medicaid, unemployment compensation, welfare, civilian and military retirement and veterans’ benefits is determined by the number of people who qualify for the programs, not by congressional action and a presidential signature.
And unfortunately, a huge chunk of this spending isn’t actually paid for, as this year marks the fourth consecutive time the deficit has been higher than $1 trillion. As Davies and Harrigan note, this year, revenue actually coming into the federal government through taxation only covered 70% of spending. We suppose future generations will just have to enjoy paying for that extra 30% on top of making up for all the other deficit spending. (Perhaps this is why a recent Rasmussen poll shows that only 23% of Americans believe life will be better for current children than their lives were – a perverse reversal of the traditional American Dream concept).
Ultimately, all of this ties in well to an inquiry recently made by Dr. Stephen Davies over at LearnLiberty.org. In a recent video entitled, “How Should Governments Deal With Debt?,” Dr. Davies lays out what he believes are the three choices governments dealing with large amounts of public debt face:
1. Enact a combination of spending cuts and tax increases
2. Repudiate the debt (leading to unspeakably high interest rates)
3. Inflate debt away by devaluing the currency
Unfortunately, as Davies notes:
The most common solution, unfortunately, is for the government to resort to inflation, and to inflate away the value of the debt by depreciating the currency. There are already alarming signs that this is what the American administration is thinking of doing.
(Watch the full video below)
Ultimately, we agree with the conclusion Dr. Davies makes: That the only way to truly deal with government debt in a sustainable manner is to reduce spending. After all, as he says:
Increasing taxes to get out of debt is better than the alternative route of causing inflation, which is in fact in this sense just another kind of tax. However, it’s ultimately undesirable, simply and straightforwardly for two reasons. The first is, taxes inhibit and distort economic activity, as any economist will tell you. So to the extent that you raise taxes, you’re going to slow down or reduce economic growth and the increase in human well being. The other thing is that a rise in taxation means an increase in the proportion of income that is decided and allocated by the political process rather than by personal and individual choice. And that is a bad thing to do on civil liberties and independence grounds. So therefore, the best way of dealing with the kind of fiscal crisis that many countries face today, not least of which is the United States, is to cut spending and to reduce the number of things the government does.
At the Coalition to Reduce Spending, we hope that the federal government will spend in a more responsible manner as the new fiscal year rolls around – but right now, it doesn’t look like the politicians are willing to change course. After all, the status quo will remain the same until political pressure from the people forces a paradigm shift. If you’re worried about the continuously growing $51,000 piece of the national debt each citizen, (including each newborn American) owes, tell your elected officials, and demand real spending reduction today.