Posts Tagged ‘Federal government of the United States’

What if America were debt free?

September 27, 2010 Leave a comment

An article like “Fearing a soaring deficit, many analysts favor letting Bush tax cuts expire” shows a lack of understanding concerning the complex interaction the marketplace has with taxes.  It also mostly ignores the elephant in the living room of spending.

When taxes are raised spending does not remain neutral, but generally decreases as taxes increase.  It works the other way around as well, so any projection that uses an increase in taxes to pay for spending likely is not taking into account how much spending will decrease or move overseas as the taxes increase. Of course even using this unrealistic static model of the economy the tax hike will only put us “within striking distance of meeting President Obama’s goal of balancing the budget, excluding interest payments on the debt, by 2015.”  Only within striking distance!  How about we pay attention to the elephant in the living room and cut spending?

Almost every US budget has been higher than the last and 2008 had an astounding budget of almost 3 trillion, but Obama’s first budget topped that by about a trillion!  What we need is not to increase taxes, but to decrease spending and by decrease I mean radically cut not to 2008 levels, but significantly lower.  The federal government has no place in Education, Welfare, or Healthcare.  Removing spending in these areas alone would cut spending by almost 40%.  Lets leave aside the inevitable growth that would result as health care and education were deregulated and individuals were encouraged  to work and say this would only bring spending down to about 2.4 trillion.  That still leaves thousands of departments, agents, and programs that are unnecessary.

On to the question in the title.  Dream with me more if you will and imagine we get spending down to one trillion.  That would leave us free to cut taxes by a trillion without deficit spending.  It blows the mind to think what cutting taxes another trillion would do to the economy.  Lets say it only increases revenue to 1.5 trillion.  That still leaves 500 billion we could put that toward an emergency fund and toward paying off the national debt.

That’s good for now and would allow us to pay off the national debt in perhaps 10 years, but what if we had been doing this since we last had spending below a trillion in 1986?  Today instead of spending 250 billion a year on interest, we could be loaning other countries that amount every year and be making interest on it.  Confidence in the US dollar would soar, the US could make more demands on other countries, and we could even cut taxes further in a more severe recession all without even changing to a superior tax system such as the Fair Tax.   We could pay for a national defense emergency with our savings.  The American people would have more money to spend on what they want rather than what the government thinks is best and I’m sure they would spend it more wisely.  We could be building an financial stronghold, instead we digging our economic pit deeper.