It is the responsibility of each generation to leave a stronger nation to the generations that follow. Ours could be the first generation of Americans to leave a weakened nation -- burdened with debt and limited economic opportunities. We must reverse the trends pushing in that direction and preserve the American Dream for ourselves, our children and future generations.
The federal budget choices we make now, along with the ones we fail to make, have tremendous impact on the economy, our own lives and the lives of Americans many years into the future.
The Economy: How Does the Federal Budget Impact Economic Growth?
Federal spending, who gets taxed at what levels, and the borrowing the government does to make up the difference between spending and taxes, all impact the growth of the economy. Healthy growth means a stronger, more prosperous nation and expanded opportunities for you, your family and your community -- more jobs, higher wages, more money to save and invest, and better government services. Growth is also essential for the United States to maintain its position of global leadership.
Federal budget projections, however, are troubling for long-term economic growth. Debt is projected to grow more quickly than the economy and eventually reach levels substantially higher than at any point in our nation’s history. As that happens, government borrowing will soak up private savings that would otherwise be invested in increasing worker productivity.
This process creates a drag on the economy that can lead to lower wages and living standards.
The government itself is projected to spend less on investments such as infrastructure, education and basic research that can increase productivity and economic growth. Such spending is being crowded out by interest on the debt, Social Security and health care programs -- which, under current law, will all grow more quickly than the economy.
Federal revenue won’t rise enough to keep up with the increased spending, in part because of large, growing, and economically inefficient tax expenditures -- provisions in the tax code that subsidize certain activities over others while reducing government revenue.
To ensure a stronger economic future, policymakers must slow the growth of debt. They can give priority to spending programs that boost economic growth, they can make other programs more efficient, and they can reform the tax code to efficiently raise enough revenue. Such changes can reduce the economic drag from debt.
Retirement: Social Security Is on an Unsustainable Path
If you are like most people currently retired or nearing retirement, Social Security is critically important to your personal financial situation; for most retirees, in fact, it provides most of their income. If you are younger, Social Security is important as well, providing disability insurance and survivor’s benefits, if needed, for yourself and your families. In addition, if you are working you are having Social Security payroll taxes taken out of your paycheck and, in return, should be able to count on income from it in your own retirement.
However, as currently structured, Social Security is on an unsustainable path and already pays out more in benefits than it collects in payroll taxes. The program faces large, automatic cuts in less than two decades if policymakers do nothing. That would mean lower income for retirees and a major disruption to the economy.
The problem is grounded in the simple fact that as the baby boom generation ages, the number of retirees receiving benefits from Social Security rapidly increases while the number of workers paying taxes to support those benefits grows much more slowly.
There are numerous options and policy levers that could put the program on a more sustainable course by reducing future benefits, increasing taxes, or a combination of the two. Most bipartisan plans look to a combination while protecting the lowest-income retirees, avoiding cuts for current recipients, and providing younger Americans a stable source of retirement benefits.
Such plans could create a sustainable and robust system. That would pave the way for more entrepreneurship among the working-age population and peace of mind among older Americans that Social Security will be there for their children and grandchildren.
Health Care: Controlling the Growth in Costs is Crucial
The health care system is the largest industry in the country and is made up of a patchwork of public and private programs. Two-thirds of all health care spending is subsidized by the government through either direct spending in programs like Medicare and Medicaid or through tax breaks for employer-provided insurance.
Health care costs tend to increase faster than economic growth, and have been doing so for decades. Thus, health care inflation places a strain on the federal budget and is the largest factor in the federal budget's long-term unsustainability. Rising health costs are also one of the key financial worries for average Americans, regardless of age.
The U.S. spends substantially more per-person on health care than any other country but our health outcomes are often no better, and in many cases worse. Given the outsized role the government plays in paying for health care, reforms to government programs can lead the way to transforming the entire health care system.
A sustained focus on making our health care system more efficient and controlling the growth of its costs can relieve the burden of health care inflation on you, your employer and any businesses you may start or invest in. Such a focus would also improve the outlook for the federal budget, boosting economic growth. This could potentially be done without harming -- and perhaps improving -- health outcomes.
Chart Talk Presentation to Local Rotary Club
Taxes: We Can't Separate Tax Levels From Spending Decisions
No one likes paying taxes. Yet treating taxes and spending as separate policy discussions is an economic fantasy.
Lower taxes theoretically encourage economic growth by providing incentives for work, saving and investment. However, if taxes fall too far below government spending for too long, the resulting deficits will eventually cancel out any positive economic gains.
The current tax code does a bad job of raising revenue. It is overly complex and has failed to keep pace with changing economic conditions. There are large and ever-growing loopholes, such as deductions, exclusions, exemptions and rate preferences, in the code that act just like spending programs. These tax expenditures face less scrutiny than spending programs, are economically inefficient, and tend to be regressive.
Limiting or eliminating these tax expenditures would increase government revenue while not harming and potentially boosting economic growth.
Ultimately, however, whatever political disagreements there may be about the appropriate size of the federal government, the “correct” level of revenue is that which adequately covers the cost of government spending. Without that, we are merely shifting an ever-growing tax burden from ourselves to our children and grandchildren. Debt is not a painless alternative to taxation.
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