Greece’s recent escapades in economic disaster are a sobering example to the United States of the consequences of allowing government spending to far exceed revenue. But though Americans’ concern regarding the financial outlook of the federal government grows, those with the power to act somehow seem largely unaffected.
The International Monetary Fund (IMF) recently released a report that the United States’ debt could surpass 100 percent of Gross Domestic Product (GDP) as early as 2015. According to the Hill, “The IMF predicts that the U.S. would need to reduce its structural deficit by the equivalent of 12% of GDP, a much larger portion than any other country analyzed except Japan. Greece, in the midst of a financial crisis, needs to reduce its structural deficit by just 9% of GDP, according to the IMF’s analysis.”
As depicted in Heritage’s 2010 Federal Budget Chart Book, the national debt is on its way to unprecedented and unsustainable new levels. The Congressional Budget Office predicts that the budget deficit in 2010 will be 10.3 percent of GDP—the historical national average is 2.9 percent. The end of the recession will mean increased revenues and deficit reductions, but it is nevertheless on track to climb dramatically in future years.
These numbers prove that it’s time to get serious about government spending, and the recent case in Greece serves as the supporting evidence. However, lawmakers didn’t seem to get the memo. Writes Robert Samuelson in the Washington Post, “The lack of seriousness is defined by three missing words: “balance the budget.”
In fact, for the first time since 1974, the House of Representatives failed to even create a budget this year, a bold and reckless move that throws fiscal responsibility to the curb. Instead, all expectations of reversing the poor fiscal outlook have been placed with the President’s Deficit Commission, which isn’t even expected to find a way to balance the budget. Instead, they have been charged to “stabilize the debt-to-GDP ratio at an acceptable level.” According to Samuelson, this is “…the language of “experts”, employed to deaden debate and convince people that “something is being done” when little, or nothing, is being done.”
The Commission’s weak objectives and the fact that its proposals will carry little weight, will be delivered after the election and if Congress considers them at all it, would be in a lame duck session, make this a weak approach at best to reversing the government’s deficit spending problem. Moreover, the Commission will exclude interest payments from its considerations, real spending that rivals spending on government programs and will climb to $768.2 billion by 2020. A serious proposal would not disregard this serious expenditure.
Writes Samuelson, “The message from Europe is that this ultimately fails. Intellectually elegant evasions are still evasions.” Samuelson claims both increases in taxes and decreases in spending are necessary to balance the budget–However, new taxes would have deleterious effects on the growth of the U.S. economy, likely without even producing expected revenues. Controlling deficits should thus focus on reducing reckless spending. It’s time for Washington to wake up and get real about seeking solutions to the nation’s pending fiscal crisis.