What's really going on in the debt ceiling talks

The current debate over raising the debt ceiling has suggested something interesting about where we are in our politics today. We are actually considering ways to cut back government growth. Imagine that.

Consider how quickly things have changed. Just last February Pres. Obama submitted a budget that would have increased the debt drastically, spending more money than any previous budget in U.S. history. The Senate rejected that in May. Then, just three months ago he called for an increase in the debt ceiling without any spending cuts, without any attempts to slow the runaway debt.

But today the same man calls for debt reduction. Of course, he also asks for an increase in taxes. The problem with these two concerns is the history of what happens when they both are brought forward. The increase in taxes always takes place immediately while the proposed cuts in spending are stretched out into the future and never quite materialize.

So how did Obama do when he offered to consider cuts in spending? Well, judge for yourself. Negotiations which were chaired by Joe Biden, our current Vice President, came up with a grand total of $2 billion in spending cuts. That was all. To put that amount in perspective, the federal government spends $10 billion each day. Of course, that was nothing but a drop in the bucket, so today we find ourselves locked in a struggle over the debt ceiling.

What I find really interesting is the suggestion that free-spending, big-government programs may be on their way out. Look at European countries such as Greece, Italy, Spain, Portugal, and Ireland. Then look at places a little bit closer, like Illinois and California. As George Will says, "Entangled economic and demographic forces are refuting the practice of ever-bigger government financed by an ever-smaller tax base and by imposing huge costs on voiceless future generations."

That statement bears repeating. Will is saying that economic problems as well as a lack of population growth are bringing to a close the idea that you can have bigger government by squeezing money out of fewer people and kicking the can of huge deficits down the road to a future generation.

So, my hope is that this liberal philosophy of taxing endlessly to keep a larger and larger number of people dependent upon the government is reaching a dead end. People are waking up to the fact that economic growth under this system cannot generate enough money to keep up with the growing entitlements.

We will see in next year's election if enough Americans have awakened to this fact: Obama is using these negotiations to finance the blowout spending of his first two years by insisting on tax increases. That’s not the way to go.

"Show me the money" and other leftist dreams

Well, the election is just around the corner. Democrats will now enter the campaign's home stretch with the threat that all of the Bush-era tax rates could expire on January 1. According to The Wall Street Journal, that means the lowest tax bracket would revert to 15% from 10%, the per child tax credit would revert to $500 from $1,000, and millions of middle class families would pay thousands of dollars more in federal taxes. With time running out to plan for 2011, the delay raises uncertainty for small businesses and individual taxpayers over their future liabilities. It also sets up a huge battle over taxes after the election. If returning lawmakers don't pass legislation by Dec. 31, the expiration date of the cuts, tax rates would rise not only on income, but also on estates, capital gains and dividends. Important corporate tax credits and relief from the Alternative Minimum Tax also are up for renewal. This is what the Democrats have given us after two years in charge.

This whole mess reveals a key belief among those on the left. Many of them truly think the country "can't afford" to let Americans keep so much of their own money. Peter Orszag has already admitted this since leaving his post as White House budget director. These Democrats think the only way to pay for their spending plans is by soaking the middle class because that's where the real money is. But they continue talking of taxing just the rich to disguise their hopes of going after the middle class money.

Does “tax the rich” really make fiscal sense? The Journal claims tax data shows that you could have taken 100% of the taxable income of every American who earned more than $500,000 in the boom year of 2006 and still only have raised $1.3 trillion in revenue. That amount would not have closed the budget deficit in either of the last two fiscal years. So why do the liberals keep talking about taxing just the rich if it wouldn’t really solve our budget problems? They know that soaking the middle class is unpopular.

We'll see in November if the American people are truly aware of how hungry the left is for their money.

Our looming crisis

I made a big mistake today. I read an article in Fortune magazine about a looming crisis – America’s debt. At first I thought the worry was about the current Obama-led spending, but it is much, much worse than that. We are facing what the magazine calls a “crushing burden of debt” that gets so big that we are overwhelmed.

The problem is due to policies that are ongoing. Thanks to all the entitlements, especially Social Security and Medicare that will soar as all of the baby boomers retire,the trend of more outlays than revenues will become far worse even after the stimulus spending winds down and the economy recovers. The timewhen all of this will become obvious is not all that far off in the future—2020, according to financial experts. The Government Accountability Office estimates that interest payments will take up nearly one-third of all revenues by 2040 with entitlements eating up the rest of the income. That means there’s nothing for defense, education, veterans benefits, or any of the other federal programs.

Why is this? Money coming into the government is mostly due to the personal income tax, which does not always rise thanks to economic downturns. However, future spending comes about mostly by entitlements, which the magazine says are “programmed to rise far faster than national income.”

What’s the fix? Fortune says bumping up the income tax won’t solve the problem because it would become too burdensome. The writer suggests the use of a VAT(value-added tax) will become a political reality because it can be used as a federal sales tax, allowing the government to collect money on all sorts of purchases. There’s a huge downside to do this because such attacks lands hard on metal and low income earners, who are forced to use a big part of their income to buy things.

So go ahead and complain about Obama economic programs. I’m not a fan of such large expenditures either. But don’t think that things will be OK in a year or two whenhe tells us the economy is recovering and he is putting less money into stimulus programs. This will not fix the mess we are in.

Do some research. Join groups that you think will help work to solve these budget problems. Monitor politicians and their spending habits. If the problem seems like a long way off, think about that year of 2020 when the largest number of baby boomers retire, sending Social Security and Medicare through the roof. If we want to save America as we know it for our children, we are running out of time.