President Obama appointed a bipartisan National Commission on Fiscal Responsibility and Reform with instructions to develop recommendations to balance the budget, excluding interest on the national debt, by the year 2015. That commission issued its preliminary report earlier this month and what is painfully obvious is that there are no painless solutions. Proposals include:
- Raising the age of full Social Security eligibility from sixty-six to age sixty-eight by 2050 and sixty-nine by 2075.
- Cutting defense spending by $100 billion.
- Eliminating interest deductions on mortgages over $500,000.
- Limiting future Medicare benefits.
- Slashing the federal workforce by ten percent.
- Eliminating $3 billion in federal farm subsidies.
- Making more workers subject to income taxes while reducing the number of tax brackets to three: 9%, 15%, and 24%.
- Increase the gas tax by fifteen cents.
- Tax dividends and capital gains as ordinary income.
Just how big is the problem? Our national debt is currently $13.7 trillion and climbing at a pace of $1.3 trillion per year. Of the $3.5 trillion our federal government spends each year, more than 60% goes to Medicare/Medicaid benefits, Social Security benefits and defense spending. An additional 12% goes to welfare programs; 5% goes for interest on the national debt and another 5% for government pension payments. The total of all these items is more than 80%. I think you can see where this is headed. You are not going to solve this problem without significant cuts to many programs for which many Americans now feel that they are entitled.
I recently returned from a vacation in France where citizens held violent protests over the government’s plan to raise the minimum retirement age from sixty to sixty-two. How are American’s going to react to the massive cuts that will be required to solve the growing crisis of our growing national debt? You can bet it’s not going to be a celebration. The final decision will be made by a relatively small group of career politicians, most of whom have never had to meet a payroll and who have voted special benefits for themselves. They have their own pension plan versus Social Security and their own health insurance plan versus the one they want us to accept. Unfortunately, many career politicians see their primary job is to get re-elected. How do you get re-elected? You need to be popular with the voters. What makes you popular with the voters? You become popular by giving stuff away, not taking it away. My best guess is that, collectively, they lack the will and courage to make these difficult decisions until they are faced with a crisis that demands action.
We all know something must be done to solve our national debt problem before it turns into a disaster. Too often we want our congressional representatives to do what is necessary as long as it doesn’t affect our wallets. We too, need to muster the courage and be willing to make financial sacrifices while holding the politicians’ feet to the fire for the way they manage our money. It’s a job that must be done and the time is now.