government by proposing to go on a multitrillion dollar borrowing
spree that risks doing to the “full faith and credit of the United
States” what excessive borrowing during the housing bubble did to
private credit.
average 23.7% of GDP for at least a decade (a whopping 20% higher
than in 2000-08).
public debt of the U.S. beyond the economy’s plausible capacity to
pay — 70% of GDP by 2012, heading quickly to 82% of GDP in 2019 and
on pace to be astronomically higher soon thereafter.
their net worth — in part as a result of inept government meddling,
past and present. For many of the same reasons, they are also
buried under a mountain of mortgages and private-sector debts gone
bad. On top of that, if the president has his way, they will soon
be hit with more than a 100% increase in public debt (from $8
trillion this year to $17.3 trillion in 2019).
begin repaying to Social Security more than $5 trillion in payroll
tax revenues that the government had taken from the trust fund and
spent for earmarks and other purposes.
— taxpayers face the prospect of 60% to 70% income-tax rates in the
future to pay for $48 trillion in unfunded liabilities under
existing entitlement programs. Now the president plans to burden
the economy’s limited taxpaying capacity with a universal health
care entitlement.
during 2004-08 — and now own 50% of U.S. public debt.
warn that the “net foreign debt” position of the U.S. is becoming
unsustainable.
formally downgraded for risk, foreign investors may start to resist
buying more U.S. debt and, if the situation gets worse, may start
withdrawing from the U.S. economy the trillions of dollars of
capital they have already lent us. Then what?
insufficient to make up the shortfall. In fact, Washington is doing
nearly everything possible to prevent Americans from adding to
their savings.
increasing taxes, but the problem with taxes — and ultimately with
big-spending government — is that tax increases harm the economy
disproportionately and quickly reduce the economy’s taxpaying
capacity.
Economic Advisors, Christina Romer demonstrated in a research paper
prepared for the National Science Foundation in 2007 that it costs
the private-sector economy $4 ($1 of tax and nearly $3 of economic
damage) to provide the government with $1 to spend.
Economic Research in 2006, former CEA Chairman Martin Feldstein
concluded that the private-sector cost of an additional dollar of
income-tax revenues for the government is $2.50 ($1 of tax and
$1.50 of economic damage).
$9.3 trillion with income tax increases of $9.3 trillion over 10
years would cost the private sector $23 trillion (Feldstein) to $37
trillion (Romer).
greater than an entire year of GDP — a blow far more severe than
the damage being done to them by the current recession.
on a borrowing spree that puts America in the same unsustainable
position as an overstretched boomer with too much debt and too
little income and whose only option is to refinance at higher costs
just to pay the interest.
a lot less. Otherwise, the next Washington-created bubble to burst
may be the full faith and credit of the United States.
director and the chief economist of the Center for Strategic Tax
Reform (cstr.org) in Washington, D.C.
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